Market Structures MCQ 1 Perfect competition

Types of Advertising

• Competitive Advertising promotes the qualities/features of one firm's goods over those of its competitors.
• Generic Advertising promotes the qualities/features of all the output of an industry without identifying individual suppliers.

Competitive Advertising in Perfectly Competitive Markets

• Not used in perfectly competitive markets due to:
  • Buyers already having a high degree of knowledge of both price and quality.
  • Sellers selling identical products, benefiting all firms in the market.
  • Increased advertising costs would reduce profits.

Advantages of Perfectly Competitive Markets

• Buyers have many sellers to choose from.
• Prices are lower than they would be with a single firm.
• Firms earn normal profit in the long run, preventing exploitation of consumers.
• Overall market quantity supplied is higher.
• Individual firms are efficient, producing at the lowest point on the AC curve.

Disadvantages of Perfectly Competitive Markets

• Lack of variety for consumers due to homogenous goods.
• Individual sellers cannot expand or benefit from economies of scale.
• Firms only make normal profit, risking business failure.
• No incentive for individual sellers to innovate.

This quiz explores the scenarios under which firms enter or exit a perfectly competitive market. Understand the conditions that lead to the entry and exit of firms in a perfectly competitive market.