Microeconomics: The Theory of the Firm under Perfect Competition · Class 11 · CBSE · Commerce Economics
Why does an individual firm under perfect competition face a perfectly elastic demand curve at the market price?
Practice question from Microeconomics: The Theory of the Firm under Perfect Competition (Class 11 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
easy · MCQ · Q-C604B3
Why does an individual firm under perfect competition face a perfectly elastic demand curve at the market price?
- A.The firm can sell any quantity at the prevailing market price.Correct answer
- B.The firm controls the market supply.
- C.The firm charges a price higher than the market price.
- D.The firm produces a unique product with no substitutes.
Solution
A perfectly competitive firm is a price taker because its output is very small relative to total market output. It can sell its output at the prevailing market price but cannot influence that price.
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