The perfectly competitive firm's demand curve is horizontal because:
A)the firm faces a constant-cost supply curve.
B)the demand for its goods is infinitely elastic.
C)firms in competitive industries collude and set the same prices.
D)the firm can change prices by varying its output.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there are numerous buyers and sellers who have access to perfect information about the market. Therefore, a perfectly competitive firm cannot affect the market price by changing its output level. It must accept the market price for its product. As a result, the demand curve facing a perfectly competitive firm is perfectly elastic or horizontal. This means that the firm can sell any quantity of output at the market price, but it cannot charge a higher price for its product.

The Perfectly Competitive Firm's Demand Curve Is Horizontal Because