Which of the following is true in a theoretical perfectly competitive market? market demand is perfectly...

Which of the following is true in a theoretical perfectly competitive market?

market demand is perfectly inelastic

a firm's marginal revenue curve is equal to the market price

market demand in a perfectly elastic

an individual firm can obtain a higher price by reducing their level of output.

Solutions

Expert Solution

The individual firm will view its demand as perfectly elastic. A perfectly elastic demand curve is a horizontal line at the price. The demand curve for the industry is not perfectly elastic, it only appears that way to the individual firms, since they must take the market price no matter what quantity they produce. Therefore, the firm’s demand curve is a horizontal line at the market price.

Marginal revenue (MR) is the increase in total revenue resulting from a one-unit increase in output. Since the price is constant in the perfect competition. The increase in total revenue from producing 1 extra unit will equal to the price . There P = MR in perfect competition .

Hence ( B ) part is a correct answer

Rahul Sunny answered 2 years ago

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