Perfect Competition Quiz

Perfect Competition Characteristics

• Product differentiation in perfect competition is nonexistent; all firms produce homogeneous products, making them perfect substitutes for one another.
• The demand curve for a firm in perfect competition is perfectly elastic, meaning firms can sell any quantity at the market price but cannot influence the price themselves.

Long-run Economic Profit in Perfect Competition

• In the long run, economic profit for firms in perfect competition tends towards zero as new entrants are attracted by short-term profits, driving prices down to the level of average total costs.

Monopoly Market Characteristics

• A monopoly market features only one seller, controlling the entire supply of the product.
• Entry barriers in a monopoly market are high, including legal restrictions, cost advantages, and control over essential resources, preventing new firms from entering.
• A monopoly firm has significant control over the price of its product, as it is the only provider and can set prices above marginal cost, leading to higher profits.