Multiple Choice
The demand curve focuses entirely on the:
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3. The Market Forces of Supply and Demand
The Demand Curve
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The demand for a perfectly competitive firm's product is represented by a horizontal line originating at the:
A
market equilibrium price
B
market equilibrium quantity
C
firm's average total cost
D
firm's marginal cost
Verified step by step guidance1
Understand that in a perfectly competitive market, the firm is a price taker, meaning it cannot influence the market price and must accept it as given.
Recognize that the demand curve facing a perfectly competitive firm is perfectly elastic, represented by a horizontal line at the market price level.
Recall that the market equilibrium price is determined where the overall market demand equals market supply, and this price is taken as given by the individual firm.
Therefore, the horizontal demand curve for the firm originates at the market equilibrium price, reflecting that the firm can sell any quantity at this price but nothing at a higher price.
Conclude that the correct interpretation is that the firm's demand curve is a horizontal line at the market equilibrium price, not at quantities or cost measures.
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