Suppose life is discovered on Mars and that it turns out to be quite sophisticated.In fact, perfect competition prevails everywhere on the planet.Which of the following characteristics of Martian firms are we likely to observe?

Question

Quizplus · Accepted Answer

Perfect competition implies that firms are price takers, meaning that they have no ability to influence the price. Therefore, option D is the correct answer. Option A is incorrect because even in perfect competition, firms can experience diminishing marginal returns. Option B is incorrect because in perfect competition, firms aim to operate where price equals marginal cost, not average variable cost. Option C is incorrect because total cost includes fixed costs, and in perfect competition, firms only consider variable costs when making production decisions.

Suppose Life Is Discovered on Mars and That It Turns