Question

Question 1 Which of the following is not a feature of competitive markets?

options:

	Identical goods
	Free entry and free exit
	Market power
	Many buyers and many sellers

Question 2 In a short-run equilibrium in a competitive market, which of the following is true?

options:

	P=AVC
	Existing firms must make zero economic profit
	Existing firms may make negative economic profit and still remain open
	P=ATC

Question 3 In a long-run equilibrium, which of the following is true?

options:

	P=AVC
	Economic profit may be negative
	P=ATC
	Accounting profit is zero

Question 4 Which of the following is NOT true?

options:

	The "shut-down" price is a long-run concept
	In general, the "exit price" is higher than the "shut-down" price
	At the "exit price", the firm just breaks even
	In the short run, given the market price, the firm should choose the quantity that satisfies P=MC if it does not shut down.

Answer 1

1. The right answer is market power. As we know, firms in the perfect competition do not have market power due to the large number of sellers selling the same product.

2. The right answer is existing firms may make negative economic profit and still remain open. Because if the firms are able to cover the variable cost of the production then despite the loss, the firm can operate in the short run.

3. The right answer is P = ATC. In the long run equilibrium the price is equal to the average total cost because firms make zero economic profit in the long run due to the free entry and exit of the firms.

4. The right answer is at the exit price the firm just breaks even. When the firms break even it means that total revenue is equal to the total cost and at the breakeven point the firms do not leave the market, therefore, exit price does not take place at the breakeven point.