3.5.3 Perfect competition

• In a perfectly competitive market, no single firm can influence the market price
• What type of product is produced in perfect competition?

  Homogeneous
• What level of information do buyers and sellers have in perfect competition?

  Perfect
• Firms in a perfectly competitive market can set their own prices.

  False
• In perfect competition, the market price is determined by overall market supply
• Match the characteristic of perfect competition with its description:

  Many small firms ↔️ No single firm influences price

  Homogeneous product ↔️ Goods are identical

  Free entry and exit ↔️ Firms can easily enter or leave

  Perfect information ↔️ All participants know prices

  Price taker ↔️ Firms accept market price
• Firms in perfect competition have no control over the prevailing market price.


  True
• What is the shape of the market demand curve in perfect competition?

  Downward-sloping
• Individual firms in perfect competition face a horizontal demand curve because they are price takers.
• What influence does a perfectly competitive firm have on market quantity?

  Sells any quantity at market price
• What is the relationship between marginal revenue and market price for a perfectly competitive firm?

  MR = P
• In the short run, a perfectly competitive firm achieves profit maximization when it produces where P = MC.
• In perfect competition, no single firm can influence the market price.

  True
• In a perfectly competitive market, individual firms face a horizontal demand curve because they are price takers.
• In the short run, what is the primary goal of a perfectly competitive firm?

  Maximize profit
• In a perfectly competitive market, individual firms face a horizontal demand curve because they are price takers.
• What condition must a perfectly competitive firm meet to maximize profits in the short run?

  P = MC
• Steps in the adjustment process of firms in the long run in perfect competition

  1️⃣ Economic profits attract new firms

  2️⃣ Market supply increases

  3️⃣ Market price decreases

  4️⃣ Firms earn normal profits
• In long-run equilibrium, a perfectly competitive firm produces where P = MC = ATC.
• What output level maximizes profit for a perfectly competitive firm?

  P = MC
• Match the feature with the correct type of demand curve in perfect competition:

  Shape: Downward-sloping ↔️ Market Demand Curve

  Shape: Horizontal ↔️ Firm Demand Curve
• Perfectly competitive firms maximize profits by producing where P = MC.

  True
• The characteristics of perfect competition, such as many small firms and free entry/exit, ensure that the market price reflects the true social cost of production.
• What is the definition of perfect competition?

  Homogeneous product, free entry
• Firms in perfect competition face significant barriers to entry and exit.

  False
• In perfect competition, firms are considered price takers
• What is the shape of the firm demand curve in perfect competition?

  Horizontal
• What quantity can a firm sell at the market price in perfect competition?

  Any
• Why is the homogeneous product characteristic important in perfect competition?

  Consumers cannot distinguish firms
• In perfect competition, market demand is determined by consumer preferences and overall market conditions
• What is the shape of the market demand curve in perfect competition?

  Downward-sloping
• The market demand curve in perfect competition is influenced by overall market supply and demand.


  True
• A firm maximizes profit in the short run by producing where MR equals MC.
• Short-run equilibrium for a perfectly competitive firm occurs when P = MC.


  True
• What are the key characteristics of a perfectly competitive market structure?

  Many small firms, homogeneous product, free entry/exit, perfect information
• Match the characteristic of perfect competition with its description:

  Many small firms ↔️ No single firm influences price

  Homogeneous product ↔️ Goods are identical and undifferentiated

  Free entry and exit ↔️ Firms can easily enter or leave

  Perfect information ↔️ All participants have complete knowledge
• Perfectly competitive firms must accept the market price determined by overall supply and demand.


  True
• What is the shape of the market demand curve in a perfectly competitive market?

  Downward-sloping
• A firm in a perfectly competitive market can influence the market price.

  False
• In the short run, marginal revenue for a perfectly competitive firm is equal to the market price.