Reading 18: Perfect Competition

LOS a: Describe the characteristics of perfect competition, explain why firms in a perfectly competitive market are price takers, and differentiate between market and firm demand curves

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.