xWhich of the following statements are true of pure competition? Choose one or more: A. Firms...

xWhich of the following statements are true of pure competition?

Choose one or more:

A. Firms act as price takers.

B. The market demand curve and the demand curve facing a firm may be one and the same, at least at certain prices.

C. The demand curve facing a competitive firm consists of a horizontal line at any price equal to or below the market price.

D. There must be a very large number of sellers.

E. The demand curve facing a competitive firm consists of a horizontal line at any price equal to or above the market price.

Expert Solution

Answers: A:Firms act as price takers. D:There must be a very large number of sellers.

Answers: Pure competition refers to amarket situation where, there are large number of buyers and sellers selling homogeneous products. As sellers are selling homogeneous product, no individual seller can decide the selling price. Instead sellers of a pure competitive market sells goods at market determined price.

Wrong options:

B. The market demand curve and the demand curve facing a firm may be one and the same, at least at certain prices.

In the figure above DD (in panel b) is the market demand curve and SS (in panel a) is the market supply curve , which is downward sloped one. the market demand and supply curve intersect at the point corresponding to the price level P. The Price which individual firms is determined by the intersection of market demand and supply curve. Thus individual demand curve is horizontally sloped one. It shows indiviadual seller can sell any quantity at market determined price. Therefore market demand curve and individual demand curves have different slopes and their shapes are different.

C.The demand curve facing a competitive firm consists of a horizontal line at any price equal to or below the market price.

E.The demand curve facing a competitive firm consists of a horizontal line at any price equal to or above the market price.

The option C and E are wrong because individual firms demand curve is horizontally sloped corresponding to the market determined price. Individual firms only sells its commodity at market deremined price. Thus only equilibrium price matters here. price above or below equilibrium price has nothing to do with it.

Rahul Sunny answered 1 year ago

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