Perfect competition is a type of marketplace where multiple companies are selling the same product or service, and a large number of consumers are looking to purchase it. None of these companies have the power to set a price for that product or service without losing business to other competitors. There are no barriers for firms to enter or exit from the market, and the product or service of one company cannot be differentiated from that of its competitors.

Below is a list of multiple-choice questions and answers on Perfect Competition to help students understand the topic better.

1. Which of the following is a point of difference between perfect and monopolistic competition?
   1. In perfect competition, the firms produce goods that are identical in all aspects, but under monopolistic competition, the goods are not identical
   2. There are many barriers to entry in perfect competition but monopolistic competition does not have any such problems
   3. There are many barriers to entry in monopolistic competition but perfect competition does not have any such problems
   4. Under perfect competition, there are many firms of relatively smaller size, but that is not the case for monopolistic competition

Answer: a

2. The market type which is known as perfect competition is __________.
   1. Highly competitive and companies find it challenging to earn economic profits in the long run
   2. Almost free from competition and companies earn large profits
   3. Marked by firms continuously trying to upgrade their products so that buyers prefer their products to that of their competitors’
   4. Dominated by fierce advertising campaigns

Answer: a

3. Which of the following factors is not a characteristic of perfect competition?
   1. A large number of buyers and sellers
   2. Well-informed buyers and sellers about product prices
   3. Individual firms spend a considerable amount on advertising
   4. No restrictions on entry into or exit from the industry

Answer: c

4. Which of the following markets have the fewest number of firms?
   1. Monopoly
   2. Perfect competition
   3. Oligopoly
   4. Monopolistic competition

Answer: a

5. Under perfect competition, a business has to make different types of decisions, both for the short run and the long run. Which of the following is a short run decision?
   1. Whether to enter or exit an industry
   2. The price to charge buyers for a product
   3. Spending on advertising and sales promotion
   4. The levels of output that can maximise profits

Answer: d

6. If many sellers are selling an identical product, what is the implication of this scenario?
   1. Significant losses for all the sellers
   2. The market supply curve is horizontal
   3. Chaos in the market
   4. The sellers do not have the power to change the price of a product

Answer: d

7. Which of the following is true if the demand for a seller’s product is perfectly elastic?
   1. The seller will not be able to sell any output if they try to price their product above the market price
   2. The market has many substitutes for a seller’s product
   3. The seller has zero incentive to sell their product below the market price
   4. All of the above

Answer: d

8. Which of the following is true about a price-taking firm?
   1. It is in contact with rival firms to fix the best price that all of them can charge
   2. It is unable to influence the price of the product that it sells
   3. It is asking the government to set a fixed price for its product
   4. It can set the price of a product at any level that it wants

Answer: b

9. Which of the following is a barrier to entry?
   1. A government regulation that restricts a monopoly firm from earning an economic profit
   2. A rule or regulation that protects a firm from new competitors arriving in the market
   3. The presence of firms within a market that are incurring economic losses, something that deters new companies from entering
   4. Anything that establishes a barrier to the expanding of output within a market

Answer: b

10. Which of the following will create a natural monopoly in the market?
    1. A technology that helps a firm to produce at a lower average cost than two or more firms
    2. A requirement for a government license before a firm can sell the product or service
    3. The ownership of all available units that are required for the raw materials
    4. Any exclusive right granted to a firm for supplying a product or service

Answer: a

Also See:

• Difference between Internal and External Trade
• Difference between Economies of Scale and Economies of Scope