Read the following statements about perfectly competitive market carefully.
Statement 1: Demand curve is perfectly inelastic in a perfectly competitive market.
Statement 2: AR curve and demand curve are not the same in a perfectly competitive market.
Answer & explanation
Correct answer: option 2
The correct answer is Option 2: Both the statements are false
Statement 1: "Demand curve is perfectly inelastic in a perfectly competitive market."
- In a perfectly competitive market, the demand curve is perfectly elastic (not inelastic).
- This means that the firm can sell any quantity at the given market price but cannot charge a higher price.
- Perfectly inelastic demand would mean that quantity demanded remains constant regardless of price, which is not the case in perfect competition.
Statement 2: "AR curve and demand curve are not the same in a perfectly competitive market."
- In perfect competition, the AR (Average Revenue) curve is the same as the demand curve.
- Since AR = Price, and Price = Demand in perfect competition, the AR curve and demand curve are identical.