Perfect Competition Quiz

Which of the following is not a characteristic of perfect competition?

• Perfect information

• Homogeneous goods

• Freedom of entry and exit

• A small number of firms

Which ONE of the following is the market structure shown in this diagram?

• A monopolistically competitive firm

• A firm which is a price maker

• A perfectly competitive firm in the long run

• A perfectly competitive firm in the short run

What does the shaded area in the diagram represent?

• Economic loss

• Supernormal profit

• Revenue earned by suppliers

• Tax revenue

In long run equilibrium in perfect competition, it is only possible to make normal profits.

What does the shaded area in the diagram represent?

• Economic loss

• Supernormal profit

• Revenue earned by suppliers

• Tax revenue

Given the situation in the market, what will happen in this market in the long run?

• Firms will leave the industry until supply of goods falls and normal profits are made

• Firms will enter the industry and the ATC curve will shift downwards due to economies of scale

• Firms will leave the industry and the industry will collapse

• Most firms will shut down

What is the profit-maximising level of output for the firm represented by the diagram below?

• 15 units of output

• 50 units of output

• 80 units of output

• 60 units of output

Which ONE of the following BEST describes why, in a perfectly competitive firm, the price = marginal revenue = average revenue?

• Perfect knowledge means that firms have to charge the same price

• There are a large number of firms in the market and consumers can bargain for a lower price

• Goods are identical, knowledge of the market is perfect and firms face the same costs of production therefore all goods are priced the same

• Firms can take advantage of economies of scale so produce at the minimum point on the average total cost (ATC) curve

A firm in perfect competition is allocatively efficient because it produces

• at the minimum point of the ATC curve.

• at the minimum point of the AVC curve.

• where P = MC.

• where MC = MR.

What is the role of supernormal profit in a perfectly competitive market?

• It provides funds for investment in research and development

• It signals to firms to enter the market

• It allows firms to grow and perhaps merge with other firms

• It provides funds for advertising and branding of the product

The diagrams shows a farm producing lettuces which is in perfect competition and the demand and supply curves for the entire lettuce industry.

Which ONE of the following can be correctly inferred from the diagrams?

• Firms in perfectly competitive markets are price takers as they take the price determined by the industry

• Firms in perfectly competitive markets are price makers

• The quantity demanded in a perfectly competitive firm is the same as quantity demanded in the industry

• Perfectly competitive firms can be dynamically efficient as they operate at the lowest point on their ATC curve