Question

For a firm under perfect competition, the demand curve it faces in the short run is ______.

Options

• Downward sloping because P > MR

• Upward sloping because P < MR

• Vertical because quantity is fixed

• Horizontal because P = AR = MR at all outputs

Answer 1

For a firm under perfect competition, the demand curve it faces in the short run is Horizontal because P = AR = MR at all outputs.

Explanation: 

A perfectly competitive firm faces a perfectly elastic demand curve at the given market price, so price, average revenue, and marginal revenue are equal and form a horizontal line.