If a firm faces a perfectly elastic demand for its product,then

Question

Quizplus · Accepted Answer

If the demand for the product is perfectly elastic, it means that consumers are very sensitive to changes in price, and the firm cannot increase its price without losing all of its customers to competitors. Therefore, the firm has to sell its product at the market price determined by the supply and demand forces in the market. Since the demand curve is horizontal at the market price, the marginal revenue curve of the firm is also horizontal at the market price. This means that the firm can sell any quantity of output at the market price, but it cannot charge a higher price for any quantity of output. Therefore, the firm's profit-maximizing output level is where marginal cost equals the market price, and the firm earns zero economic profit in the long run.

If a Firm Faces a Perfectly Elastic Demand for Its