CH 2 : Perfect Markets
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Questions and Answers

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?

    <p>Marginal revenue</p> Signup and view all the answers

    What is a characteristic of businesses in a perfect market?

    <p>They are price takers</p> Signup and view all the answers

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

    <p>Marginal revenue equals marginal cost</p> Signup and view all the answers

    What happens in the long run in perfectly competitive markets?

    <p>Firms make normal profits but no economic profits</p> Signup and view all the answers

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

    <p>To emulate the conditions of perfect competition</p> Signup and view all the answers

    What is the result of perfect competition in the marketplace?

    <p>Efficient allocation of resources</p> Signup and view all the answers

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

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

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

    <p>When marginal revenue exceeds marginal cost</p> Signup and view all the answers

    What occurs in the long run in perfectly competitive markets?

    <p>Firms adjust their output in response to profits and losses</p> Signup and view all the answers

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

    <p>Resources are allocated most efficiently</p> Signup and view all the answers

    What is the main benefit of perfect markets?

    <p>To ensure maximum efficiency and equitable resource distribution</p> Signup and view all the answers

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

    <p>To emulated the conditions of perfect competition</p> Signup and view all the answers

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

    <p>Homogeneous</p> Signup and view all the answers

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

    <p>To analyze and formulate policies</p> Signup and view all the answers

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

    <p>Because they have no influence over the market price</p> Signup and view all the answers

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

    <p>To have no involvement in the market</p> Signup and view all the answers

    What occurs when MR is less than MC?

    <p>The firm should reduce production</p> Signup and view all the answers

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

    <p>It is used to determine the optimal output level</p> Signup and view all the answers

    What is the role of policies in perfect competition?

    <p>To emulate the conditions of perfect competition</p> Signup and view all the answers

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

    <p>To decide on the optimal output level</p> Signup and view all the answers

    What is the outcome of perfect competition in the marketplace?

    <p>Efficient allocation of resources</p> Signup and view all the answers

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

    <p>The firm achieves profit maximization</p> Signup and view all the answers

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

    <p>An individual business is a subset of an industry</p> Signup and view all the answers

    What is the condition for a firm to prevent losses?

    <p>MC exceeds MR</p> Signup and view all the answers

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

    <p>To maximize profit</p> Signup and view all the answers

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

    <p>It ensures complete mobility of factors of production</p> Signup and view all the answers

    What is a characteristic of a perfectly competitive market?

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

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

    <p>The firm increases production to enhance profits.</p> Signup and view all the answers

    What is the primary role of governments in perfect competition?

    <p>To prevent monopolies and promote fair competition.</p> Signup and view all the answers

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

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

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

    <p>Firms make normal profits, but no economic profits.</p> Signup and view all the answers

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

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

    What is the fundamental virtue of perfect competition?

    <p>Efficient resource allocation.</p> Signup and view all the answers

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

    <p>The firm reduces production to prevent losses.</p> Signup and view all the answers

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

    <p>Because they have no influence over the market price.</p> Signup and view all the answers

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

    <p>It ensures that resources are allocated efficiently.</p> Signup and view all the answers

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

    <p>They provide a benchmark for evaluating market structures.</p> Signup and view all the answers

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

    <p>MR = MC</p> Signup and view all the answers

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

    <p>To maximize profits.</p> Signup and view all the answers

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

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

    What is the role of policies in perfect competition?

    <p>To promote transparency and a level playing field.</p> Signup and view all the answers

    What is the outcome of perfect competition in the marketplace?

    <p>Resources are allocated most efficiently.</p> Signup and view all the answers

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

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

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

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

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

    <p>It leads to the allocation of resources most efficiently.</p> Signup and view all the answers

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

    <p>The firm is maximizing profits.</p> Signup and view all the answers

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

    <p>It ensures that resources are allocated efficiently.</p> Signup and view all the answers

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