3.6 Perfect Competition

Cards (37)

  • What is perfect competition characterized by?
    Key market structure features
  • Firms in perfect competition can influence the market price.
    False
  • Perfect competition is characterized by a large number of independent buyers and sellers
  • What is the significance of many buyers and sellers in perfect competition?
    No individual influence
  • Firms in perfect competition produce identical products.
  • In perfect competition, firms can freely enter or exit the market
  • Why are firms in perfect competition called price takers?
    Accept market price
  • Perfect information is a characteristic of perfect competition.
  • The characteristics of a perfectly competitive market are summarised in the following table
  • What type of demand curve do individual firms in perfect competition face?
    Perfectly elastic
  • No single firm in perfect competition can influence the market price.
  • Perfect competition is a market structure characterized by many buyers and sellers
  • What does the term 'many buyers and sellers' imply in perfect competition?
    No individual price influence
  • Firms in perfect competition can set their prices freely.
    False
  • What is the shape of the firm demand curve in perfect competition?
    Horizontal
  • In perfect competition, firms maximize profit where marginal revenue equals marginal cost
  • In perfect competition, marginal revenue equals the market price.
  • What is the profit-maximizing condition for firms in perfect competition?
    MR = MC = P</latex>
  • In a perfectly competitive market, firms maximize profit by producing where marginal revenue (MR) equals marginal cost (MC). What condition ensures this profit maximization?
    MR = MC
  • Marginal revenue is the additional revenue from selling one more unit
  • In perfect competition, firms are price takers, and their marginal revenue is constant and equal to the market price.
  • In perfect competition, there are many independent buyers and sellers
  • Match the characteristic of perfect competition with its description:
    Many Buyers and Sellers ↔️ Large number of independent buyers and sellers
    Identical Products ↔️ Firms offer homogeneous goods
    Free Entry and Exit ↔️ Firms can enter or exit without barriers
    Perfect Information ↔️ Buyers and sellers know market conditions
  • Market demand in perfect competition is downward sloping because as the price decreases, the quantity demanded increases.
  • Firm demand in perfect competition is perfectly elastic
  • What is the slope of the firm demand curve in perfect competition?
    Horizontal
  • Marginal cost increases as output increases due to diminishing returns in perfect competition.
  • The supply curve in perfect competition is the portion of the marginal cost curve above the average variable cost
  • Market equilibrium in perfect competition occurs when the quantity supplied equals the quantity demanded.
  • What role do firms play in determining the market price in perfect competition?
    Price takers
  • The firm demand curve in perfect competition is perfectly elastic
  • The profit-maximizing condition in perfect competition is marginal revenue equals marginal cost.
  • What happens to the firm's output when its marginal cost equals the market price in perfect competition?
    Output is maximized
  • In long-run equilibrium in perfect competition, firms earn zero economic profit
  • Order the types of efficiency in perfect competition from most to least common:
    1️⃣ Allocative Efficiency
    2️⃣ Productive Efficiency
    3️⃣ Dynamic Efficiency
  • Allocative efficiency in perfect competition occurs when price equals marginal cost.
  • What type of efficiency ensures that no one can be better off without making someone else worse off?
    Pareto efficiency