A perfectly elastic demand curve implies that the firm
A) must lower price to sell more output.
B) can sell as much output as it chooses at the existing price.
C) realizes an increase in total revenue that is less than product price when it sells an extra unit.
D) is selling a differentiated (heterogeneous) product.

Question

Quizplus · Accepted Answer

A perfectly elastic demand curve means that the price elasticity of demand is infinite. This indicates that consumers are extremely responsive to even the slightest change in price, and as a result, the firm cannot raise prices without losing all of its customers. On the other hand, the firm can sell as much output as it chooses at the existing price, since consumers are willing to buy any quantity of the product they desire at that price. Therefore, choice B is correct. Choices A, C, and D are incorrect as they do not accurately describe the nature of a perfectly elastic demand curve.

A Perfectly Elastic Demand Curve Implies That the Firm