CFA Level I · CFA Level I Exam · The Firm and Market Structures
In a perfectly competitive market, a firm's demand curve is most likely:
The demand curve facing a perfectly competitive firm is perfectly elastic (horizontal) at the market price. The firm is a price taker and can sell any quantity at that price, but would sell nothing if it charged more, because identical products are available from rivals.
- Aperfectly elastic at the market priceCorrect
- Bdownward sloping but more elastic than the market demand curve
- Cidentical to the downward-sloping market demand curve
Explanation
A perfectly competitive firm is a price taker. It can sell any quantity at the market price, so its demand curve is horizontal, which means perfectly elastic. A downward-sloping firm demand curve implies some pricing power, which is not present in perfect competition.
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