What is the demand curve in a perfectly competitive market

Asked by admin @ 28/10/2021 in Business viewed by 351 People

Indicate whether each of the statements below about a perfectly competitive market is true or false. a. In general, the market demand curve in a perfectly competitive market is perfectly elastic. False True b. In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve. True False c. An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output. True False d. An individual firm in a perfectly competitive market must lower its price to sell more of its product. True False f. In a perfectly competitive market, average revenue is equal to the market price. False True e. In a perfectly competitive market, marginal revenue is equal to the market price. False True

Answered by admin @ 28/10/2021

Answer:

A. False

B. True

C. False

D. False

E. True

F. True

Explanation:

A perfect competition is characterised by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.

In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.

Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.

If a seller increases her price, her demand would fall to zero because customers woild patronize other suppliers. Also, there is no incentive to reduce price because the firm would be making a loss. This is the reason why the firm's demand curve is perfectly elastic, the firm can only sell at one price. This price is set by the market forces.

The market's demand curve is downward sloping

Price = average revenue = Marginal revenue

I hope my answer helps you

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Asked by maham237 @ 13/01/2021 in Business viewed by 2750 persons

What is the demand curve in a perfectly competitive market

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