Which of the following best describes the marginal revenue curve faced by a perfectly competitive firm?

• A. It is upward sloping as output increases.
• B. It is a horizontal line at the market price.
• C. It is vertical at the profit-maximizing quantity.
• D. It is downward sloping due to diminishing returns.

Answer: (B)

Verified step by step guidance

1. Understand that a perfectly competitive firm is a price taker, meaning it cannot influence the market price and must accept it as given.
2. Recall that marginal revenue (MR) is the additional revenue a firm earns from selling one more unit of output.
3. In perfect competition, since the firm sells each unit at the same market price, the marginal revenue equals the market price for every unit sold.
4. This implies that the marginal revenue curve is a horizontal line at the market price level, reflecting constant MR regardless of output quantity.
5. Contrast this with other market structures where MR can slope upward, downward, or be vertical, but for perfect competition, the MR curve is always horizontal.