which of the following statements is correct? Which of the following statements
ID: 1169212 • Letter: W
Question
which of the following statements is correct? Which of the following statements is correct? The demand curve for a perfectly competitive firm is perfectly elastic but the demand curve for a perfectly competitive industry is downward sloping. The demand curve for a perfectly competitive firm is downward sloping, but the demand curve for a perfectly competitive industry is perfectly elastic. The demand curves are downward sloping for a perfectly competitive firm and a perfectly competitive industry. The demand curves are perfectly elastic for both a perfectly competitive firm and a perfectly competitive industry.Explanation / Answer
a) is correct.
Note that the demand curve for the market, which includes all firms, is downward sloping, while the demand curve for the individual firm is flat or perfectly elastic, reflecting the fact that the individual takes the market price, P, as given. The difference in the slopes of the market demand curve and the individual firm's demand curve is due to the assumption that each firm is small in size. No matter how much output an individual firm provides, it will be unable to affect the market price. Note that the individual firm's equilibrium quantity of output will be completely determined by the amount of output the individual firm chooses to supply.
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