答案和详解如下：

1.A firm has the following characteristics:

§       Relatively small in size

§       Marginal revenue is equal to the selling price

§       Economic profits will not be earned for any significant period of time

The firm is best described as existing in a(n):

A)   purely competitive market.

B)   price searcher market.

C)   monopolistic market structure.

D)   oligopoly market structure.

The correct answer was A)

The firm being described is a price taker firm in a purely competitive market. These firms must sell their product at the going market price, there are no barriers to entry, and there are a large number of firms that produce a homogeneous product.

2.The demand curve for a firm in a perfectly competitive market is:

A)   upward sloping.

B)   vertical.

C)   downward sloping.

D)   horizontal.

The correct answer was D)

In a market of perfect competition an individual firm’s demand schedule is perfectly elastic (horizontal).

3.In a perfectly competitive market, what determines the price of the product?

A)   The producers of the product.

B)   The government.

C)   The members of the supply chain.

D)   Market supply and demand.

The correct answer was D)

Individual firms in perfect competition have no influence over market price. They are price takers who must sell at the prevailing market price. If they set their price higher than the market, they will sell nothing.

4.Firms in a perfectly competitive industry will increase their output until which of the following conditions is met?

A)   Total revenue equals price.

B)   Marginal cost equals price.

C)   Marginal revenue equals average fixed cost.

D)   Marginal revenue equals average total cost.

The correct answer was B)

When a firm operates under conditions of perfect competition, marginal revenue always equals price. Under perfect competition, price is constant (a horizontal line) so marginal revenue is constant. Therefore a firm will increase output until marginal cost equals price.

5.Which of the following characteristic of perfect competition explains why firms in perfect competition are referred to as price takers?

A)   Each firm is small relative to the total market.

B)   The demand curve is horizontal for firms in perfect competition.

C)   There are many independent firms.

D)   There are no barriers to entry or exit.

The correct answer was B)

Firms under perfect competition face horizontal (perfectly elastic) demand curves. They can sell all of their output at the prevailing market price, but they will sell nothing if they set their output price above the market price. They are price takers because they have to “take” the market price as a given.