Question

A limitation of the perfectly competitive market structure is that potential new entrants generally face barriers to market entry. True False

Answer 1

Answer :

Question 1 : Option b) FALSE

Explanation : In a perfectly competitive market there is absolutely no barrier on entry and exit. There is free entry and exit in a perfectly competitive market.

Question 2 : Option b) market supply and demand

Explanation : In a perfectly competitive scenario the number of consumers and producers in the market is very high, thus no one individually has any significant influence over the market price. Thus the market price is determined by the market supply and demand (at the intersection of these two curves).

Question 3 : Option a) TRUE

Explanation : The profit maximizing condition in case of a producer is where the marginal revenue equals the marginal cost (revenue earned from the last unit sold is equal to the cost of producing it). In perfect competition the marginal revenue stays a constant and is equal to the price of the product. Thus P = Marginal Cost (MC) gives the profit maximizing quantity.

Question 4 : Option b) breaks even

Explanation : When P = (a firm's) ATC, it basically implies that the firm is able to recover its fixed and variable cost from selling the good. Thus is said to break even (no profit no loss because it is able to recover the costs into production).