What is the shape of the demand curve faced by the perfectly competitive firm, and why?
What will be an ideal response?
The demand curve faced by a perfectly competitive firm is horizontal, that is, the demand is perfectly elastic. A perfectly competitive firm is one of many sellers in the market that produce identical products. A single firm's output is small relative to the market demand so the firm cannot influence the market price by increasing or decreasing its output. It can sell any quantity it chooses at the going price. Hence the firm's demand curve is a horizontal line at the market price.
You might also like to view...
Joanne rents a TV production studio to produce an extra hour of a TV show. The rent is
A) a private cost and not an external cost. B) an external cost and not a private cost. C) both a private cost and an external cost. D) neither a private cost nor an external cost. E) a private benefit because viewers will benefit from watching the extra hour of the show.
Refer to Scenario 25-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of
A) $8,000. B) $10,000. C) $50,000. D) $100,000.