Suppose a perfectly competitive market conditions are characterized by the following inverse demand and inverse supply functions: P = 100 - 5Q and P = 10 + 5Q.Then, the demand curve facing an individual firm operating in this market is

Question

Quizplus · Accepted Answer

In a perfectly competitive market, each firm is a price taker and has no ability to change the market price. Thus, the demand curve facing an individual firm is perfectly elastic or horizontal. In this scenario, the market equilibrium price can be found by equating the demand and supply functions:

100 - 5Q = 10 + 5Q

Solving for Q, we get Q = 9. Substituting this value of Q in either the demand or supply function, we get the market equilibrium price as P = 55. This means that each firm in the market faces a horizontal demand curve at the equilibrium price of $55. Therefore, the correct answer is option C.

Suppose a Perfectly Competitive Market Conditions Are Characterized by the Following