A perfectly competitive firm faces a:
A) perfectly elastic demand function.
B) perfectly inelastic demand function.
C) demand function with unitary elasticity.
D) None of the preceding answers is correct.

Question

Quizplus · Accepted Answer

A perfectly competitive firm faces a market with many buyers and sellers of a homogenous product, and therefore it has no power to influence the market price. As a result, the demand curve faced by a perfectly competitive firm is perfectly elastic, meaning that any change in price will result in a proportional change in quantity demanded. Therefore, the best choice is A) a perfectly elastic demand function.

A Perfectly Competitive Firm Faces A