In the context of market structures, the demand curve faced by an individual firm under perfect competition has which of the following shapes?

Introduction / Context:
This question examines understanding of the basic properties of a perfectly competitive market and the demand curve faced by an individual firm operating in such a market. Perfect competition is a standard model in microeconomics in which there are many buyers and sellers, identical products, and free entry and exit. The shape of the firm's demand curve reflects its inability to influence the market price and is a central feature of this model.

Given Data / Assumptions:

• The firm operates under perfect competition.
• The output of the firm is homogeneous with that of other firms in the industry.
• Each firm is a price taker, not a price maker.
• We must identify the shape of the demand curve for this individual firm.

Concept / Approach:
In perfect competition, the market determines a single equilibrium price through the intersection of industry demand and industry supply. Each firm is small relative to the whole market and cannot influence this price by its own actions. As a result, from the firm's perspective, it can sell any quantity it wants at the prevailing market price. This means that the firm faces a perfectly elastic demand curve at that price level, represented graphically by a horizontal line. The firm's average revenue and marginal revenue are constant and equal to price.

Step-by-Step Solution:
Step 1: Recall the definition of a perfectly competitive firm: many firms, identical products, and no market power. Step 2: Because the product is identical across firms, buyers are indifferent among suppliers and will buy from any firm charging the market price. Step 3: If the firm raises its price even slightly above the market price, it will lose all its customers, because buyers can easily switch to many other sellers. Step 4: If the firm reduces its price below the market price, it is unnecessary because it can already sell any amount at the prevailing price. Step 5: This behaviour means that the individual firm faces a demand curve that is perfectly elastic at the market price, represented by a horizontal line.

Verification / Alternative check:
A simple numerical example can help. Suppose the market price for the product is Rs 100 per unit. The firm can sell 10 units, 100 units, or 1,000 units at Rs 100 because its output is tiny relative to the whole market. The revenue per unit remains constant at Rs 100 and its marginal revenue is also Rs 100 for every extra unit sold. This constant price at all output levels, from the firm's point of view, is exactly what a perfectly elastic demand curve means. As soon as the firm attempts to charge more than the market price, quantity demanded for that firm drops to zero, confirming the horizontal demand curve shape.

Why Other Options Are Wrong:
Option A, a downward sloping demand curve, describes the market demand curve, not the demand curve for an individual firm in perfect competition. Option B, perfectly inelastic demand, would be a vertical line and implies that quantity demanded does not change with price, which is not the case here. Option C, a concave curve, is a generic shape and does not correspond to the special property of perfect competition. Only option D, perfectly elastic, matches the horizontal demand curve that a perfectly competitive firm faces at the prevailing market price.

Common Pitfalls:
Students often confuse the market demand curve with the individual firm's demand curve. The market demand is indeed downward sloping, but once price is determined, each firm takes it as given and faces a horizontal demand curve at that price. Another pitfall is to assume that all firms always have downward sloping demand, which is not true in this idealised model. Remember to distinguish between industry level and firm level analysis.

Final Answer:
The demand curve faced by an individual firm under perfect competition is perfectly elastic.