A purely competitive firm can be identified by the fact that
A) there are other firms in the industry producing similar products.
B) it is making only normal profits in the short run.
C) its average revenue equals its marginal revenue.
D) it experiences diminishing marginal returns.

Question

Quizplus · Accepted Answer

A purely competitive firm is one that operates in an industry in which there are many producers and consumers, and no single firm has control over the market price. In this type of industry, firms face a horizontal demand curve, which means that they can sell as much as they want at the prevailing market price. Because of this, the competitive firm's average revenue (AR) equals its marginal revenue (MR), which is a key characteristic of perfect competition. Choices A and D are not unique to purely competitive firms, as firms in other market structures may also produce similar products (A) and experience diminishing marginal returns (D). Choice B is incorrect because in the short run, a competitive firm may earn normal, supernormal, or subnormal profits.

A Purely Competitive Firm Can Be Identified by the Fact