Which type of graph would best represent the market for a perfectly competitive industry?

• A. A graph with a kinked demand curve
• B. A graph with a vertical supply curve
• C. A graph with a horizontal demand curve at the market price
• D. A graph with a downward-sloping demand curve and an upward-sloping supply curve

Answer: (C)

Verified step by step guidance

1. Understand the characteristics of a perfectly competitive market: many buyers and sellers, identical products, and firms are price takers.
2. Recall that in perfect competition, each individual firm faces a perfectly elastic demand curve at the market price, meaning the demand curve is horizontal.
3. Recognize that a horizontal demand curve indicates the firm can sell any quantity at the market price but cannot influence the price by changing its output.
4. Contrast this with other types of demand curves: a kinked demand curve is associated with oligopoly, a downward-sloping demand curve is typical for a monopoly or monopolistic competition, and a vertical supply curve does not represent typical market supply behavior.
5. Conclude that the best graph to represent the market for a perfectly competitive industry is one with a horizontal demand curve at the market price.