Table of contents | |
Multiple Choice Questions | |
Match the Following | |
True or False | |
Very Short Answers | |
Short Answers | |
Long Answers |
Q1: Perfectly competitive firms can freely enter or exit the market.
Ans: True
Q2: In perfect competition, each firm has some degree of market power.
Ans: False
Q3: Perfectly elastic demand curve implies that the firm can sell any quantity of output at the market price.
Ans: True
Q4: Firms in perfect competition can engage in non-price competition to increase sales.
Ans: False
Q5: Normal profit is the minimum level of profit necessary to keep a firm in operation.
Ans: True
Q1: Explain the concept of perfect competition in one sentence.
Ans: Perfect competition is a market structure characterized by a large number of small firms producing homogeneous products, with perfect information, and ease of entry and exit.
Q2: Define Marginal Revenue (MR).
Ans: Marginal Revenue (MR) is the additional revenue earned by a firm from selling one more unit of output.
Q3: Why is the demand curve facing a perfectly competitive firm perfectly elastic?
Ans: The demand curve facing a perfectly competitive firm is perfectly elastic because the firm can sell any quantity of output at the prevailing market price.
Q4: What is the significance of the price being equal to marginal cost for a firm in perfect competition?
Ans: When price equals marginal cost, the firm maximizes its profit because it produces at the point where the additional cost of production equals the additional revenue from selling one more unit of output.
Q5: State one condition necessary for a firm to achieve profit maximization in perfect competition.
Ans: For profit maximization in perfect competition, a firm must produce at the level where marginal cost equals marginal revenue and where price equals marginal cost.
Q1: Profit Maximization in Perfect Competition
Ans: Determine the level of output where marginal cost (MC) equals marginal revenue (MR).
Q2: Role of Perfect Competition in Promoting Consumer Welfare
Ans: Perfect competition ensures that consumers have access to a variety of products at competitive prices.
Q3: Short-Run and Long-Run Equilibrium of a Firm in Perfect Competition
Ans: In the short run, a firm may experience profits or losses based on market conditions.
Q4: Importance of Price Elasticity of Demand for Perfectly Competitive Firms
Ans: Perfectly competitive firms face perfectly elastic demand, meaning they can sell any quantity at the market price.
Q5: Challenges Faced by Firms in Perfect Competition
Ans: Fierce competition from other firms in the market.
Q1: Market Entry and Exit in Perfect Competition
Ans: Market Entry:
Market Exit:
Q2: Efficiency of Perfectly Competitive Markets
Ans: Perfectly competitive markets achieve allocative and productive efficiency.
Q3: Price Determination in Perfect Competition
Ans: Prices are determined through the interaction of market demand and supply.
Q4: Benefits of Perfect Competition for Consumers and Society
Ans: Consumers benefit from low prices and a wide variety of goods and services.
Q5: Importance of Perfect Competition in the Economy
Ans: Encourages innovation and efficiency as firms compete to reduce costs and improve products.
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