ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Under perfect competition, a demand curve of the firm is perfectly elastic because the firm can sell any amount of goods at the prevailing price. So even a small increase in price will lead to zero demand. This indicates that the firm has no control over price.

Detailed explanation-2: -All goods in a perfectly competitive market are considered perfect substitutes, and the demand curve is perfectly elastic for each of the small, individual firms that participate in the market. These firms are price takers–if one firm tries to raise its price, there would be no demand for that firm’s product.

Detailed explanation-3: -A perfectly competitive firm’s demand curve is a horizontal line at the market price. This result means that the price it receives is the same for every unit sold. The marginal revenue received by the firm is the change in total revenue from selling one more unit, which is the constant market price.

Detailed explanation-4: -Therefore, the demand curve under perfect competition is a horizontal, perfectly elastic demand curve at the market price because at a uniform price any number of quantity can be sold.

Detailed explanation-5: -If a market is perfectly competitive, then the market demand curve must be infinitely price elastic. If the firms in an industry are price takers, then every firm in the industry faces a horizontal demand curve. Firms that sell commodities on markets that are imperfectly competitive face downward-sloping demand curves.