CH 2 : Perfect Markets

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What is the primary objective of a firm in a perfect market?

To minimize losses

To maximize market share

To maximize profit (correct)

To maximize revenue

What is a characteristic of a perfectly competitive market?

Products are heterogeneous

A single entity can influence the market price

There are barriers to entry and exit

No single entity can wield undue influence over the market (correct)

What is true about the relationship between an industry and an individual business in a perfect market?

An industry comprises multiple businesses producing identical products (correct)

An individual business produces a unique product

An industry is a single business

An individual business is the same as an industry

What is a revenue concept that is pivotal in decision-making in a perfect market?

Marginal revenue Signup and view all the answers

What is a characteristic of businesses in a perfect market?

They are price takers Signup and view all the answers

What is the condition for a firm to achieve profit maximization?

Marginal revenue equals marginal cost Signup and view all the answers

What happens in the long run in perfectly competitive markets?

Firms make normal profits but no economic profits Signup and view all the answers

What is the goal of governments in terms of market structure and policy?

To emulate the conditions of perfect competition Signup and view all the answers

What is the result of perfect competition in the marketplace?

Efficient allocation of resources Signup and view all the answers

What is the purpose of perfect markets and perfect competition in economics?

To understand the optimal allocation of resources in a market-driven economy Signup and view all the answers

Under what condition should a firm increase production to enhance profits?

When marginal revenue exceeds marginal cost Signup and view all the answers

What occurs in the long run in perfectly competitive markets?

Firms adjust their output in response to profits and losses Signup and view all the answers

What is the result of the dynamic equilibrium in perfectly competitive markets?

Resources are allocated most efficiently Signup and view all the answers

What is the main benefit of perfect markets?

To ensure maximum efficiency and equitable resource distribution Signup and view all the answers

What is the goal of governments in terms of market structure and policy related to perfect competition?

To emulated the conditions of perfect competition Signup and view all the answers

What is the primary characteristic of products in a perfectly competitive market?

Homogeneous Signup and view all the answers

What is the purpose of perfect markets and perfect competition in economics?

To analyze and formulate policies Signup and view all the answers

Why are individual businesses in perfectly competitive markets considered 'price takers'?

Because they have no influence over the market price Signup and view all the answers

What is the role of the government in a perfectly competitive market?

To have no involvement in the market Signup and view all the answers

What occurs when MR is less than MC?

The firm should reduce production Signup and view all the answers

What is the significance of average revenue in decision-making in a perfect market?

It is used to determine the optimal output level Signup and view all the answers

What is the role of policies in perfect competition?

To emulate the conditions of perfect competition Signup and view all the answers

What is the role of marginal cost in decision-making in a perfect market?

To decide on the optimal output level Signup and view all the answers

What is the outcome of perfect competition in the marketplace?

Efficient allocation of resources Signup and view all the answers

What occurs when a firm's marginal revenue equals its marginal cost?

The firm achieves profit maximization Signup and view all the answers

What is the relationship between an industry and an individual business in a perfect market?

An individual business is a subset of an industry Signup and view all the answers

What is the condition for a firm to prevent losses?

MC exceeds MR Signup and view all the answers

What is the goal of a firm in a perfect market?

To maximize profit Signup and view all the answers

What is the significance of freedom of entry and exit in a perfect market?

It ensures complete mobility of factors of production Signup and view all the answers

What is a characteristic of a perfectly competitive market?

There are numerous buyers and sellers, making it impossible for single entities to influence market prices Signup and view all the answers

What is the consequence of a firm producing where marginal revenue exceeds marginal cost?

The firm increases production to enhance profits. Signup and view all the answers

What is the primary role of governments in perfect competition?

To prevent monopolies and promote fair competition. Signup and view all the answers

What is the primary distinction between an industry and an individual business in a perfect market?

The industry is a collection of businesses producing identical products, whereas the individual business is a single entity. Signup and view all the answers

What is the outcome of the dynamic equilibrium in perfectly competitive markets?

Firms make normal profits, but no economic profits. Signup and view all the answers

What does the characteristic of 'homogeneous products' imply in a perfect market?

There is little to no differentiation between goods sold by different sellers. Signup and view all the answers

What is the fundamental virtue of perfect competition?

Efficient resource allocation. Signup and view all the answers

What is the consequence of a firm producing where marginal revenue is less than marginal cost?

The firm reduces production to prevent losses. Signup and view all the answers

Why are individual businesses in perfectly competitive markets considered 'price takers'?

Because they have no influence over the market price. Signup and view all the answers

What is the significance of 'freedom of entry and exit' in a perfect market?

It ensures that resources are allocated efficiently. Signup and view all the answers

What is the significance of perfect markets and perfect competition in economics?

They provide a benchmark for evaluating market structures. Signup and view all the answers

What is the condition for a firm to achieve profit maximization in perfect competition?

MR = MC Signup and view all the answers

What is the primary goal of a firm in a perfect market?

To maximize profits. Signup and view all the answers

What is the purpose of perfect markets and perfect competition in economics?

To provide an idealized framework for understanding real-world markets. Signup and view all the answers

What is the role of policies in perfect competition?

To promote transparency and a level playing field. Signup and view all the answers

What is the outcome of perfect competition in the marketplace?

Resources are allocated most efficiently. Signup and view all the answers

What is the significance of 'average revenue' in decision-making in a perfect market?

It is a key metric in deciding output levels to maximize profits. Signup and view all the answers

What is the role of the government in a perfectly competitive market?

To not interfere with the market and allow free entry and exit. Signup and view all the answers

What is the significance of entry and exit of firms in perfectly competitive markets?

It leads to the allocation of resources most efficiently. Signup and view all the answers

What occurs when a firm's marginal revenue equals its marginal cost?

The firm is maximizing profits. Signup and view all the answers

What is the significance of 'mobility of factors of production' in a perfect market?

It ensures that resources are allocated efficiently. Signup and view all the answers

CH 2 : Perfect Markets

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Questions and Answers

What is the primary objective of a firm in a perfect market?

What is a characteristic of a perfectly competitive market?

What is true about the relationship between an industry and an individual business in a perfect market?

What is a revenue concept that is pivotal in decision-making in a perfect market?

What is a characteristic of businesses in a perfect market?

What is the condition for a firm to achieve profit maximization?

What happens in the long run in perfectly competitive markets?

What is the goal of governments in terms of market structure and policy?

What is the result of perfect competition in the marketplace?

What is the purpose of perfect markets and perfect competition in economics?

Under what condition should a firm increase production to enhance profits?

What occurs in the long run in perfectly competitive markets?

What is the result of the dynamic equilibrium in perfectly competitive markets?

What is the main benefit of perfect markets?

What is the goal of governments in terms of market structure and policy related to perfect competition?

What is the primary characteristic of products in a perfectly competitive market?

What is the purpose of perfect markets and perfect competition in economics?

Why are individual businesses in perfectly competitive markets considered 'price takers'?

What is the role of the government in a perfectly competitive market?

What occurs when MR is less than MC?

What is the significance of average revenue in decision-making in a perfect market?

What is the role of policies in perfect competition?

What is the role of marginal cost in decision-making in a perfect market?

What is the outcome of perfect competition in the marketplace?

What occurs when a firm's marginal revenue equals its marginal cost?

What is the relationship between an industry and an individual business in a perfect market?

What is the condition for a firm to prevent losses?

What is the goal of a firm in a perfect market?

What is the significance of freedom of entry and exit in a perfect market?

What is a characteristic of a perfectly competitive market?

What is the consequence of a firm producing where marginal revenue exceeds marginal cost?

What is the primary role of governments in perfect competition?

What is the primary distinction between an industry and an individual business in a perfect market?

What is the outcome of the dynamic equilibrium in perfectly competitive markets?

What does the characteristic of 'homogeneous products' imply in a perfect market?

What is the fundamental virtue of perfect competition?

What is the consequence of a firm producing where marginal revenue is less than marginal cost?

Why are individual businesses in perfectly competitive markets considered 'price takers'?

What is the significance of 'freedom of entry and exit' in a perfect market?

What is the significance of perfect markets and perfect competition in economics?

What is the condition for a firm to achieve profit maximization in perfect competition?

What is the primary goal of a firm in a perfect market?

What is the purpose of perfect markets and perfect competition in economics?

What is the role of policies in perfect competition?

What is the outcome of perfect competition in the marketplace?

What is the significance of 'average revenue' in decision-making in a perfect market?

What is the role of the government in a perfectly competitive market?

What is the significance of entry and exit of firms in perfectly competitive markets?

What occurs when a firm's marginal revenue equals its marginal cost?

What is the significance of 'mobility of factors of production' in a perfect market?

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