A firm in a perfectly competitive market faces a horizontal demand curve mainly because it:
Correct answer: C. Accepts the market price
- A. Sells a unique product
- B. Controls the market supply
- C. Accepts the market price
- D. Can prevent new firms entering
Explanation
A perfectly competitive firm is a price taker because its individual output is too small to influence the market price. It can sell its output at the prevailing price, giving it a horizontal demand curve. Product uniqueness and entry barriers are associated with less competitive markets.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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