Multiple choice

What is the shape of the demand curve faced by a firm under perfect competition?

  1. Horizontal

  2. Vertical

  3. Positively sloped

  4. Negatively sloped
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under perfect competition, each firm faces a perfectly elastic (horizontal) demand curve because it is a price taker - the market price is determined by industry supply and demand, and the individual firm cannot influence it. The firm can sell any quantity at the market price but none above it. Options B, C, and D are incorrect - the demand curve is neither vertical, upward sloping, nor downward sloping for a perfectly competitive firm.

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