Question 1 : MBA | Free practice exams

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Perfect competition. In the short term, such markets are productively inefficient as output will not occur where marginal cost is equal to average cost, but allocatively efficient, as output under perfect competition will always occur where marginal cost is equal to marginal revenue, and therefore where marginal cost equals average revenue. However, in the long term, such markets are both allocatively and productively efficient.

Which term best describes Perfect Competition?

A market in which there are many small firms all producing homogeneous goods
A market in which there are many large firms all producing heterogeneous goods
A market in which there are many small firms all producing homogeneous goods
A market in which there are many large firms all producing heterogeneous goods

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