In perfectly competitive market, the demand curve of a firm is?
In perfectly competitive market, the demand curve of a firm is?
Solution
Option 1 -> Perfectly inelastic means quantity demanded remains constant regardless of price changes (vertical demand curve), which doesn't apply to a firm in perfect competition.
Option 2 -> Unit elastic means percentage change in quantity equals percentage change in price (elasticity = 1), which is not the case for individual firms in perfect competition.
Option 3 -> More than unit elastic means demand is responsive to price changes but not infinitely so, which is insufficient for perfect competition.
Option 4 -> Perfectly elastic means the firm can sell any quantity at the market price but nothing at a higher price, represented by a horizontal demand curve.
Hence, Option 4: Perfectly elastic -> In a perfectly competitive market, individual firms are price takers and face a horizontal (perfectly elastic) demand curve at the market-determined price. This occurs because the product is homogeneous and there are many sellers. If a firm tries to charge even slightly above the market price, consumers will buy from competitors instead, causing the firm to lose all sales. The firm can sell any quantity at the prevailing market price, making the elasticity of demand infinite. -> correct
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2025: 3 June Shift 1