CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

In a perfectly competitive market, the ______
A. industry demand curve is horizontal.
B. industry demand curve is vertical.
C. firm's demand curve is horizontal.
Explanation: In a perfectly competitive market, while the demand curve facing the industry is downward-sloping, the demand curve facing an individual firm is perfectly elastic, i.e., horizontal.

User Contributed Comments 6

User Comment
danlan Whole industry's demand curve is similar to a monopoli firm (i.e: price searcher), since in monopoli market, one firm=whole industry. In price taker market, one firm is a very small part of the industry.
wink44 Whatever the price level, that is what they must sell for, as a price taker. So the demand curve is horizontal.
jpducros I don't understand why the demand curve facing the industry is different from the demand curve facing an individual firm. Someone does ?
JCopeland The market price is determined by equilibrium for the market (typical upward sloping supply curve and downward sloping demand curve). However, each firm in the industry has a relatively low impact on total supply, and therefore is forced to take the price of the market. Therefore, the individual firm's demand curve is horizontal. If the firm exits the industry, it will not change price. For price to change must be on a macro level, drought for crops, etc. Does that help?
showmethemoney nice question
farhan92 i initially selected C but stupidly assumed the industry d curve is the same as the firm d curve. in a PCM ever firm has the same D!!!
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