For a perfectly competitive firm, what does its demand curve equal?

In a perfectly competitive market, a firm is considered a price taker, meaning it has no influence over the market price of the goods it sells. The demand curve faced by a perfectly competitive firm is perfectly elastic at the market price. This situation leads to the demand curve being equivalent to both the marginal revenue and the average revenue curves.

When the firm sells additional units of its product, it can do so at the same market price. Therefore, the additional revenue gained from selling one more unit, known as marginal revenue, is equal to the price of the product. Since the firm sells each unit at the same price, average revenue, which is total revenue divided by the quantity sold, also equals the price.

Thus, for a perfectly competitive firm, the demand curve aligns with the marginal revenue curve and the average revenue curve, both showing a horizontal line at the market price. This relationship is crucial because it indicates that the firm can sell any quantity of output at the prevailing market price, but it cannot influence that price through its own level of output. The ability to sell additional units without affecting the price is a fundamental characteristic of perfect competition.