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JAMB Economics 1987 Question 25

Question 25

Market Structures

Which of the following is compatible with a firm in a purely competitive market?

  1. A.Demand is inelastic
  2. B.Demand is infinitely elastic
  3. C.Marginal Cost is falling
  4. D.Price is greater than Marginal Cost.
Show the answer and explanation

Answer: B (Demand is infinitely elastic)

Explanation

A perfectly competitive firm can sell any amount at the market price, so the demand curve it faces is horizontal (infinitely elastic).