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Question
What type of demand curve does a firm have under the perfect competition?
Short Answer
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Solution
- A firm under perfect competition faces a perfectly elastic demand curve.
- This means the demand curve is a horizontal line, parallel to the X-axis.
- The firm is a price taker, it must accept the market price.
- It can sell any quantity at the given price but cannot charge a higher price.
Therefore, the Average Revenue (AR) = Marginal Revenue (MR) = Price.
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