5 Questions
In perfect competition, a perfectly competitive firm faces which type of demand curve?
Horizontal (flat, perfectly elastic) demand curve
What is the change in total revenue that results from selling one additional unit of output known as?
Marginal Revenue (MR)
What is a perfectly competitive firm's ability in relation to the price of the product it sells?
It is a price taker
What is the basis of the theory of perfect competition?
Four assumptions including many sellers and many buyers
What does a perfectly competitive firm's demand curve look like?
Horizontal (flat, perfectly elastic) demand curve
Study Notes
Demand Curve in Perfect Competition
- A perfectly competitive firm faces a horizontal demand curve.
Change in Total Revenue
- The change in total revenue that results from selling one additional unit of output is known as marginal revenue.
Firm's Ability in Relation to Price
- A perfectly competitive firm is a price-taker, meaning it has no ability to influence the price of the product it sells.
Basis of Perfect Competition Theory
- The basis of the theory of perfect competition is that there are many firms producing a homogeneous product, and there is free entry and exit in the market.
Perfectly Competitive Firm's Demand Curve
- A perfectly competitive firm's demand curve is perfectly elastic, meaning that it is horizontal.
Test your understanding of perfect competition theory with this quiz. Explore the assumptions, demand and marginal revenue curves, profit-maximizing strategies in the short and long run, and the industry supply curve. Perfect for economics students and enthusiasts.
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