Question 1

Perfect competition forms one extreme of the market structure spectrum.

Accepted Answer

Perfect competition is characterized by a large number of buyers and sellers, homogeneous products, perfect information, easy entry and exit, and zero long-run economic profits. It is considered as one extreme of the market structure spectrum, with monopolistic competition, oligopoly, and monopoly forming the other three types of market structures.

Question 2

A price taking firm is able to sell its product just slightly above the current market price.

Accepted Answer

A price taking firm, also known as a price taker, must accept the prevailing market price and cannot sell its product above the current market price.

Question 3

The market for toothpaste is a good example of perfect competition.

Accepted Answer

The toothpaste market is not an example of perfect competition because there are a few dominant brands that have significant market power and can exert control over pricing and other factors. Therefore, the market is oligopolistic in nature.

Question 4

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price.

Accepted Answer

In a perfectly competitive market, a firm cannot influence the market price because it is a price taker. It must sell its product at the prevailing market price or lower in order to remain competitive.

Question 5

Perfect competition is an ideal market structure.

Accepted Answer

Perfect competition is an ideal market structure because it assumes a large number of buyers and sellers, homogeneous products, perfect information, and no barriers to entry or exit, resulting in efficiency and the absence of market power.

Question 6

Under perfect competition, firms are relatively ignorant of the actions of their competitors.

Accepted Answer

Under perfect competition, firms have full knowledge of their competitors' actions and prices as there are many sellers and buyers in the market, and information is easily accessible.

Question 7

Perfectly competitive firms are known for being "price makers."

Accepted Answer

Perfectly competitive firms are not price makers, they are price takers. This means that they have no control over the price they charge for their products because they are too small to influence the market price. They must accept the going market price for their goods and services.

Question 8

Perfectly competitive markets are not the most efficient type.

Accepted Answer

Perfectly competitive markets are considered the most efficient type because they maximize total surplus, which includes both consumer and producer surplus, by producing at a point where price equals marginal cost.

Question 9

In perfectly competitive markets, some buyers do not have full information about the products available.

Accepted Answer

In perfectly competitive markets, buyers have full information about the products available, which allows them to make informed decisions and ensures that market prices accurately reflect supply and demand.

Question 10

It is relatively easy for a firm to enter a perfectly competitive market.

Accepted Answer

In a perfectly competitive market, there are no barriers to entry or exit, which makes it relatively easy for a firm to enter the market and start selling its products or services.

Question 11

Perfectly competitive markets feature relatively high barriers to entry.

Accepted Answer

Perfectly competitive markets feature low barriers to entry, meaning that new firms can enter the market easily and compete with existing firms.

Question 12

In perfect competition, there are differences in the products sold by various firms.

Accepted Answer

In perfect competition, firms sell identical or homogeneous products, meaning there is no difference in the products offered by each firm.

Question 13

Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products in the market.

Accepted Answer

Perfect competition theory assumes that all market participants have perfect knowledge of the availability and prices of all products in the market.

Question 14

In the long run, a perfectly competitive industry tends to develop differentiated products.

Accepted Answer

In a perfectly competitive industry, there are many small firms producing identical products, and there is no room for differentiation. The presence of differentiated products is more likely in a monopolistically competitive industry where firms have some degree of control over the price and can differentiate their products to attract customers.

Question 15

A perfectly competitive firm is a "price maker."

Accepted Answer

A perfectly competitive firm is a "price taker," meaning it has no control over the market price and must accept the price set by the market.

Question 16

Perfect competition is characterized by numerous firms.

Accepted Answer

Perfect competition is a market structure in which there are numerous small firms that compete with each other.

Question 17

A perfectly competitive firm may, under some circumstances, be able to affect the market price.

Accepted Answer

In a perfectly competitive market, individual firms are price takers, meaning they do not have the ability to influence the market price because of the large number of firms and the presence of homogeneous products.

Question 18

Perfectly competitive markets have absolutely no drawbacks.

Accepted Answer

Perfectly competitive markets may have some drawbacks, including potential market inefficiencies, externalities, and lack of innovation due to the inability of firms to earn significant profits. Additionally, in reality, it is difficult to find a perfectly competitive market as there are often barriers to entry, imperfect information, and market power exerted by some firms.

Question 19

Perfectly competitive markets are not the best at producing the goods that are desired by consumers.

Accepted Answer

Perfectly competitive markets are efficient in producing goods that are desired by consumers because they respond directly to consumer demand, with many firms competing to meet that demand at the lowest price.

Question 20

Perfect competition is characterized by numerous products with well-known brand names.

Accepted Answer

Perfect competition is characterized by a large number of small firms producing homogeneous products with no differentiation. Therefore, there are no well-known brand names in perfect competition.

Quiz 10: The Firm and the Industry Under Perfect Competition