Price elasticity of demand for an individual firm under perfect competition is _____________.

zero

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unity

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infinite

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less than infinite, but greater than zero.

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Solution

The correct option is D infinite
Perfect competition is a type of market where there are large number of buyers and sellers who deals in homogeneous product due to which no individual unit is able to influence the price of the product and the firms have to quote the price that prevails in the market because of the customer's knowledge about the price.

The demand curve is perfectly elastic because at the prevailing quantity any number of quantity can be bought and sold.

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Why is the demand curve of a firm under monopolistic competition more elastic than under monopoly? Explain.

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