Test Questions with Answers
Chapter 13. Competition Theory I.
Perfect Competition
Chapter 13 ― Question 1
The demand curve for a perfect competitor is identical
- with its marginal revenue curve
- with its marginal cost curve
- with its supply curve
*A. A perfect competitor receives the same price for every unit. Its demand curve is therefore a horizontal line. About B: It is the supply curve that is identical with the marginal cost curve.
Chapter 13 ― Question 2
How competitive is perfect competition?
* Perfect competitors do not compete. They do not differentiate their products; they do not advertise their products (what do you want to say about identical eggs?); they are not interested in increasing their market share, as they have already maximised output and cannot increase it any further.
Chapter 13 ― Question 3
Can you think of any real-world example of perfect competition?
* Well, stands selling ice cream cones or hot pretzels or French fries come very close to it. There is, however, one caveat: Implicit collusion is quite frequent; such stands are often sabotaged by competitors if their owners have lowered price.
Chapter 13 ― Question 4
Is Amazon an example of a perfect competitor?
* No, definitely not. Amazon is a very large retailer, who charges discounts like a wholesaler. The entire question is posed wrongly. A single firm can only be a perfect competitor, if the entire industry consists of perfect competitors. This is not the case for the bookstore business.
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