For a firm in a price-taker market, the firm's demand curve is
A) a horizontal line at the market price that is equal to the firm's marginal revenue curve.
B) an upward-sloping line that is equal to the firm's marginal cost above AVC.
C) a downward-sloping line that lies below the firm's marginal revenue curve.
D) undefined because it cannot determine the price it charges for its output.

Question

Quizplus · Accepted Answer

In a price-taker market, the firm cannot influence the market price, which is determined by the intersection of market demand and supply. Therefore, the firm's demand curve is a horizontal line at the market price, which is also the firm's marginal revenue curve, as each additional unit sold fetches the same price. The firm can choose its output level based on its marginal cost and revenue, but it cannot charge a higher price than the market price.

For a Firm in a Price-Taker Market, the Firm's Demand