For a firm operating in a perfectly competitive market, the demand curve it faces for its product has which of the following shapes?

Introduction / Context:
Perfect competition is an idealized market structure used in microeconomics to analyze how prices and output are determined when many small firms compete. In this model, each firm is a price taker, meaning it cannot influence the market price through its own output decisions. This question focuses on the shape of the demand curve faced by an individual firm under perfect competition. Understanding this shape is crucial for analyzing firm level pricing, output decisions, and profit maximization in such markets.

Given Data / Assumptions:

• The firm operates in a perfectly competitive market.
• There are many buyers and sellers, each small relative to the market.
• Products are homogeneous, and there is free entry and exit.
• The question asks about the shape of the demand curve for the individual firm product.

Concept / Approach:
In perfect competition, the market determines a single uniform price through the intersection of industry demand and supply. Each firm can sell any quantity it wants at this market price without affecting the price, as long as its output is small compared with total market supply. As a result, from the firm perspective, demand is perfectly elastic at the market price. Graphically, this is represented by a horizontal straight line at the prevailing market price level. The firm demand curve is also its average revenue and marginal revenue curve. It is not downward sloping like market demand because the firm is a price taker, not a price maker.

Step-by-Step Solution:
Step 1: Recall the features of perfect competition, especially that each firm is a price taker. Step 2: Recognize that a price taker can sell any small quantity at the same price and cannot charge a higher price without losing all customers. Step 3: Understand that this implies the firm faces a perfectly elastic demand curve at the market price. Step 4: Identify that a perfectly elastic demand curve is drawn as a horizontal straight line at the given price level. Step 5: Compare the options and select the one that describes a horizontal straight line at the prevailing market price.

Verification / Alternative check:
To verify, imagine a wheat farmer in a region with many identical wheat producers. The market price for wheat is determined by total demand and supply for wheat in the region. The individual farmer can sell as much wheat as he can produce at that market price, but if he tries to charge more, buyers will simply purchase from many other farmers who offer the standard price. This situation is exactly what a horizontal demand curve represents: at that price, quantity demanded from the firm can vary over a range without changing the price. This confirms the horizontal shape is correct for the firm demand curve under perfect competition.

Why Other Options Are Wrong:
A downward sloping straight line describes a typical market demand curve, not the demand curve faced by an individual firm in perfect competition, so option A is incorrect. A vertical straight line at the equilibrium quantity would mean that the quantity demanded from the firm does not change with price, which is not realistic here; it also suggests perfectly inelastic demand, so option B is wrong. An upward sloping straight line would imply that more is demanded at higher prices, contrary to the law of demand, so option D is incorrect. Only option C accurately reflects a perfectly elastic demand curve at the market price.

Common Pitfalls:
Students often confuse the market demand curve with the firm demand curve. They may think both are downward sloping because they are used to seeing downward sloping demand in basic diagrams. Another pitfall is forgetting the difference between price maker and price taker situations; in monopolies or imperfect competition, firms do face downward sloping demand curves. In perfect competition, however, it is essential to remember that the firm is small and has no control over price, which is why the demand curve it faces is horizontal at the market price.

Final Answer:
For a firm in a perfectly competitive market, the demand curve it faces is a horizontal straight line at the prevailing market price.