If the demand curve faced by a firm is horizontal, then the firm is ________ and a ________.

Question

Quizplus · Accepted Answer

A horizontal demand curve indicates perfect elasticity of demand, which is a characteristic of a perfectly competitive market. In such a market, firms have no control over the price and must accept the prevailing market price as given. Therefore, they are price takers rather than price makers. Monopolies, on the other hand, have a downward sloping demand curve because they are the sole provider of a good or service and can set prices.

If the Demand Curve Faced by a Firm Is Horizontal