Which of the following labels correctly identifies the horizontal line on a perfectly competitive cherry producer's graph?

• A. Average total cost (ATC)
• B. Demand curve for cherries
• C. Market price (P) and marginal revenue (MR)
• D. Quantity supplied (Q)

Answer: (C)

Verified step by step guidance

1. 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.
2. Recognize that the horizontal line on the firm's graph represents the constant market price (P) at which the firm can sell any quantity of output.
3. Recall that in perfect competition, the demand curve facing an individual firm is perfectly elastic, which means it is a horizontal line at the market price.
4. Note that marginal revenue (MR) is the additional revenue from selling one more unit, and in perfect competition, MR equals the market price (P), so MR is also represented by the same horizontal line.
5. Conclude that the horizontal line correctly represents both the market price (P) and marginal revenue (MR), not average total cost (ATC), demand curve for cherries (which is the market demand, not the firm's), or quantity supplied (Q), which is on the horizontal axis.