Question

A perfectly competitive firm's demand curve is __________.

• A. perfectly inelastic
• B. the same as the market demand curve
• C. downward sloping
• D. the same as the firm's marginal revenue curve.

Answer 1

The correct option is D the same as the firm's marginal revenue curve.

All producers are price takers and cannot influence the price. They simply accept the singular price determined in the market. Any variation in its output will have a negligible effect on the total supply and effectively the market price, that the effect can safely be assumed to be 0. The firm may choose to sell additional output at the same industry price and thus the marginal revenue (extra revenue earned) will always be equal to price.