Perfect Competition — Advanced & Basic Quiz | Round 1 1. Under perfect competition, why does an individual firm face a perfectly elastic demand curve at the prevailing market price? A. Consumers have no information about prices B. The firm sells a differentiated product C. The firm is too small to influence market price D. The firm controls total market supply 2. Which relationship correctly describes revenue for a perfectly competitive firm? A. MR > P > AR B. P = AR = MR C. AR > P > MR D. P > AR > MR 3. A perfectly competitive firm maximizes economic profit by producing the output where: A. AVC equals AFC B. TR is minimum C. MR equals MC with MC rising D. AC is maximum 4. If the market price is ₹80 and a perfectly competitive firm’s marginal cost equals ₹80 at 500 units, while MC is rising, what is the firm’s profit-maximizing output? A. 800 units B. 600 units C. 500 units D. 400 units 5. In the short run, a perfectly competitive firm should shut down when: A. P is below minimum AVC B. P equals minimum AC C. P is below minimum AC but above AVC D. P is above AVC 6. If a competitive firm has P = ₹50, AVC = ₹40, and AC = ₹70 at its profit-maximizing output, what is the firm’s short-run position? A. It earns abnormal profit B. It earns normal profit C. It incurs a loss but continues producing D. It must immediately leave the industry 7. Why can a perfectly competitive firm earn an economic loss in the short run without immediately shutting down? A. Revenue may cover variable cost and part of fixed cost B. The firm can set a higher market price C. Marginal cost becomes zero D. Fixed costs disappear when production continues 8. In long-run equilibrium under the standard perfect competition model, which condition is consistent with zero economic profit and productive efficiency? A. P = minimum AC = MC B. P = maximum AC = MC C. P < AVC < MC D. P = MC > minimum AC 9. If firms in a perfectly competitive industry earn persistent abnormal profits, what is the standard long-run adjustment? A. Government fixes a higher price B. New firms enter the industry C. Existing firms permanently reduce output D. Consumers leave the market permanently 10. What happens to the market price when new firms enter a perfectly competitive industry because existing firms are earning abnormal profits, assuming an upward-sloping market supply curve? A. It tends to fall B. It tends to rise C. It becomes zero D. It must remain permanently unchanged 11. Which of the following is NOT a standard assumption of perfect competition? A. Perfect knowledge B. Homogeneous product C. Large number of buyers and sellers D. Significant barriers to entry 12. If a competitive firm sells 1,000 units at ₹25 per unit, its total revenue is: A. ₹25,000 B. ₹250,000 C. ₹2,500 D. ₹1,025 13. Suppose a competitive firm’s total revenue rises from ₹4,000 to ₹4,500 when output rises from 100 to 110 units. What is marginal revenue over this change? A. ₹50 per unit B. ₹25 per unit C. ₹5 per unit D. ₹500 per unit 14. A competitive firm faces a market price of ₹60. If MC is ₹45 at 100 units and ₹70 at 120 units, with MC rising continuously, which output is closest to the profit-maximizing point? A. Above 120 units B. Between 100 and 120 units C. Below 100 units D. Exactly 120 units 15. The short-run supply curve of a perfectly competitive firm is generally identified with which portion of its marginal cost curve? A. The AC curve above maximum AC B. The entire MC curve including falling portions C. The rising MC portion above minimum AVC D. The AVC curve below minimum AVC 16. Which condition represents normal economic profit for a perfectly competitive firm at its equilibrium output? A. P > AC B. P = AC C. P < AC D. P = AVC only 17. Which statement best explains why a perfectly competitive firm cannot normally charge a price above the market price? A. Its product has no close substitutes B. The government prohibits all price changes C. The firm faces no competition D. Consumers can buy an identical product from competing firms 18. Allocative efficiency in the standard perfectly competitive model is associated with which condition? A. P = MC B. P = maximum AC C. MR = zero D. AVC = AFC 19. Which market structure is characterized by a single seller, significant barriers to entry, and a downward-sloping market demand curve faced by the firm? A. Perfect competition B. Monopoly C. Monopolistic competition D. Perfectly contestable competition 20. Why is perfect competition considered an important benchmark even though few real-world markets satisfy all its assumptions exactly? A. It provides a clear standard for analyzing price, output, and efficiency B. It assumes firms have complete control over market price C. It eliminates the need to study other market structures D. It guarantees every real firm earns zero accounting profit