Understanding Perfectly Competitive Markets

The video explains the concept of long run equilibrium in a perfectly competitive market, using the example of the apple market. It discusses how equilibrium is achieved when marginal revenue equals marginal cost, resulting in zero economic profit. The video explores the effects of a market shock, such as increased demand, leading to new equilibrium prices and quantities. It also examines the entry of new firms and changes in cost structures, resulting in an increasing cost market. Finally, the video discusses the dynamics of the long run supply curve in both constant and increasing cost environments.

What is a key characteristic of a perfectly competitive market?

• Identical cost structures

• Differentiated products

• High barriers to entry

• Monopoly power

In a perfectly competitive market, where should a firm produce to achieve zero economic profit?

• Where total revenue is maximized

• Where marginal revenue equals marginal cost

• Where marginal cost is greater than marginal revenue

• Where average total cost is minimized

What happens when a firm experiences positive economic profit in a perfectly competitive market?

• Firms exit the market

• The firm's revenue decreases

• New firms enter the market

• The firm's costs increase

How does a demand shock, such as increased demand for apples, affect the market?

• It increases the equilibrium quantity

• It leads to market exit

• It decreases the equilibrium price

• It reduces economic profit

What is the result of more firms entering a market with increasing input costs?

• A constant cost structure

• No change in cost structure

• An increasing cost structure

• A decreasing cost structure

In an increasing cost perfectly competitive market, what happens to the long-run supply curve?

• It becomes a flat line

• It slopes downward

• It slopes upward

• It remains unchanged

What could cause inputs to become cheaper as more firms enter the market?

• Higher fixed costs

• Decreased supply of inputs

• Economies of scale

• Increased demand for inputs

What is the effect on equilibrium price when inputs become cheaper due to increased market entry?

• Equilibrium price fluctuates

• Equilibrium price remains constant

• Equilibrium price decreases

• Equilibrium price increases

In a decreasing cost scenario, how does the long-run supply curve behave?

• It remains unchanged

• It slopes downward

• It becomes a flat line

• It slopes upward

What is the long-run effect on the market when there are no barriers to entry and firms are making economic profit?

• Firms will exit the market

• Economic profit will increase

• Cost structures will remain constant

• New firms will enter until profit is zero