"Demand curves slope down, so the demand curve faced by a perfectly competitive firm must also be downward sloping." Do you agree or disagree? Why?
What will be an ideal response?
Disagree. Market demand curves slope down. However, the demand curve faced by a perfectly competitive firm is horizontal at the market price. The firm's output is such a small portion of industry output so that it cannot influence the market price. If it sets the price of its good, which is identical to other firms' products, it will be unable to sell any of its output. If it sets its price below the market price, it will not maximize economic profits. Consequently, the firm takes the market price as given, and it receives this per-unit price for any given quantity it produces and sells.
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A perfectly competitive firm will shut down in the short run when marginal revenue equals marginal cost at a price less than minimum average variable cost
a. True b. False Indicate whether the statement is true or false
Which of the following is true of leakages and injections in the circular flow model? a. Leakages minus injections equal gross domestic product (GDP)
b. Injections minus leakages equal gross domestic product (GDP). c. Leakages minus injections equal zero in equilibrium. d. Leakages must be less than injections for an economy to be in equilibrium. e. Leakages must be greater than injections for an economy to be growing.
All Giffen goods are
a. inferior goods, and all inferior goods are Giffen goods. b. inferior goods, but not all inferior goods are Giffen goods. c. normal goods, but not all normal goods are Giffen goods. d. normal goods, and all normal goods are Giffen goods.
Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars SoldTrucks SoldLarry105Joe99Ralph312 Based on last month's data, Ralph's opportunity cost of selling a truck is selling:
A. 3 cars. B. 1/4 of a car. C. 4 cars. D. 1/3 of a car.