Question

TU) UdlIT IS. In a perfectly competitive market: each firm produces a unique product and chooses a price that maximize there are very few firms, and each controls a large segment of the market. entry into the industry is restricted in the long run. there are many relatively small firms, and each firm is a price-taker. c. t If a firm is a price-taker, it: sells its product at the price determined by the market. sells its product at the price set by the government. sells its product at the price dictated by the largest firm in the industry. can sell all it can produce at whatever price it chooses. The marginal revenue curve for a perfectly competitive firm: lies above the firm's demand curve. lies below the firm's demand curve. is the same as the firm's demand curve. is the same as the market demand curve. The fact that all firms in a perfectly competitive industry are small relative to the industry and produce goods that are perfect substitutes leads to: each firm in the industry having identical cost structures in the short run. each firm in the industry facing a perfectly elastic demand curve. all firms earning only normal profits in the short run. substantial market power for each firm.

Show transcribed image text

Answer 1

3. There are many relatively small firms and each Firm is a price taker

Reason- In perfect competition there are many firms and price is decided by the market or industry.

4. A. It sells its product at a price determined by the market.

Reason- Price taker firms do not decide the prices as they don't have market power.

5. C. Is the same as the firms demand curve.

Reason- since price remains the same. The marginal revenue is also equal to the firms demand curve. TR=P*Q

MR=dTR/dQ= P

6. Each firm in the industry faces a perfectly elastic demand curve.

Reason- When price is increased by a firm, consumer will buy from another firm since goods are perfectly substitutable. So demand faced by firm is perfectly Elastic.