The demand curve faced by a competitive firm is
A) horizontal.
B) downward sloping.
C) upward sloping.
D) nonexistent.

Question

Quizplus · Accepted Answer

A competitive firm faces a horizontal demand curve because it must sell its product at the prevailing market price. If the firm were to try to charge a higher price, consumers would simply switch to other firms that offer lower prices for the same product, thereby rendering the higher-priced firm unable to sell any of its product. Conversely, if the firm were to charge a lower price, it would not gain any more sales because consumers could already purchase the product at the prevailing market price from other firms. Therefore, the demand curve facing a competitive firm is perfectly elastic, or horizontal at the market price.

The Demand Curve Faced by a Competitive Firm Is