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Question

If the demand curve of a firm is a horizontal straight line ____________.

A
the firm can sell any amount of output at the existing price
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B
the firm can sell only a specified amount of output at the existing price
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C
all firms will sell equal amount of the commodity
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D
firms can differentiate their product
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Solution

The correct option is A the firm can sell any amount of output at the existing price
If the demand curve of a firm is a horizontal straight line the firm can sell any amount of output at the existing price. This is seen in perfect competition.Perfect competition is a form of the market in which there is a large number of buyers and sellers and where homogeneous product is sold at a uniform price.Firm's demand curve under perfect competition is a horizontal straight line parallel to X-axis.Under perfect competition, AR is constant for a firm. Hence, AR = MR.

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