A competitive firm facing a perfectly elastic demand curve can:

Question

Quizplus · Accepted Answer

When a firm faces a perfectly elastic demand curve, it means that any increase in price will lead to a complete loss of sales as consumers will switch to a competitor offering the same product at a lower price. Therefore, the firm can only sell at the market price determined by the interaction of supply and demand. In other words, the firm has no power to influence the price and can only adjust its output to match the prevailing market conditions. This implies that the firm is a price taker, meaning that it has to accept the market price as given and adjust its production levels accordingly to maximize profit. Thus, the correct answer is C that the firm can sell all of its output at the market price.

A Competitive Firm Facing a Perfectly Elastic Demand Curve Can