For a firm in a perfectly competitive industry

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, the demand curve is perfectly elastic, which means the firm can sell as much output as it wants at the prevailing market price. As a result, the firm has no control over the price and is a price-taker. Therefore, the marginal revenue curve is also perfectly elastic and is equal to the product price. Hence, choice B is correct. Choices A and C are incorrect because the demand curve is perfectly elastic, not unitary elastic, and has an infinite price elasticity of demand. Choice D is incorrect because the firm cannot sell more output by unilaterally lowering its product price since it has no market power to influence the price.

For a Firm in a Perfectly Competitive Industry