Question

The demand curve facing a perfectly competitive firm is

A. perfectly vertical.
B. ​downward-sloping and less flat than the market demand curve.
C. the same as the market demand curve.
D. ​downward-sloping and more flat than the market demand curve.
E. perfectly horizontal.

Answer 1

The demand curve facing a perfectly competitive firm is perfectly horizontal (E), indicating that the firm can sell any quantity it wants at the market price without affecting the price itself, as it is a price taker in a perfectly competitive market.

Step-by-step explanation:

The demand curve facing a perfectly competitive firm is often described in economics. Students might encounter this concept in their studies, particularly when comparing different market structures. In a perfectly competitive market, each firm perceives the demand for its goods as being perfectly elastic. This concept is contrasted with a monopolistically competitive firm, which faces a demand curve that is an intermediate case between perfect competition and monopoly, and a monopoly, where the demand curve is the same as the market demand curve.

This means that the firm can sell as much as it wants at the market price, and the price does not change with the quantity supplied by the firm. The perfectly elastic demand curve represents the fact that the firm is a price taker and can sell its product at the prevailing market price with no influence on the price itself.

Answer 2

Option (E) is correct.

Step-by-step explanation:

Under the perfectly competitive market conditions, there are large number of buyers and sellers and there is no restrictions on the entry and exit of the firms. Prices of the goods are determined by the market forces and the demand curve for a firm in a perfectly competitive environment varies significantly from the market demand curve. The demand curve is horizontal because all the goods in a perfectly competitive market are considered as perfect substitutes.