Final answer:
In a purely competitive industry, the demand curve faced by a firm is perfectly elastic, allowing it to sell unlimited quantities at the prevailing market price. A single firm in such an industry is a price taker and can sell any quantity at the market price. This is in stark contrast to a monopoly or a monopolistically competitive firm, which face downward-sloping demand curves.
Step-by-step explanation:
Demand Curve in a Purely Competitive Industry
In a purely competitive industry, the demand curve is typically horizontal, indicating that the price is set by the market and firms are price takers. This means that a perfectly competitive firm can sell as much output as it desires at the prevailing market price without influencing the price itself. Their demand curve is perfectly elastic because buyers have complete substitutes for the firm's product; hence, the firm's demand curve coincides with the market price.
Demand Curve for a Single Firm
For a single firm in a competitive industry, the perceived demand curve is flat. In other words, the firm faces a perfectly elastic demand at the market price. It cannot sell at a higher price than what the market sets, and any amount offered at the market price will be sold. The market price itself is determined by the aggregate demand and supply of all the firms in the industry.
Comparison with Monopoly and Monopolistically Competitive Firm
Contrastingly, a monopoly faces the market demand, which is downward sloping, meaning they can sell more only by lowering their prices. A monopolistically competitive firm faces a demand curve that falls in between; it is less elastic than a perfect competitor's but not as steep as a monopoly's demand curve. Monopolistically competitive firms have some power to set prices due to product differentiation but are still faced with competition.