The perfectly competitive firm faces

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm faces perfectly elastic demand because there are many buyers and sellers in the market, so the firm cannot influence the market price. The firm can sell all of its output at the prevailing market price, and any attempt to charge a higher price would result in buyers purchasing from other sellers in the market. Therefore, the demand curve facing the firm is horizontal, which means that the firm can sell any quantity of output at the market price. The other options are incorrect since a downward sloping demand curve and constant marginal costs are characteristics of imperfectly competitive markets, and a horizontal supply function implies that the firm has a fixed quantity of output that it can produce at any given price, which is not the case for a perfectly competitive firm.

The Perfectly Competitive Firm Faces