In a perfectly competitive market a firm faces a perfectly e

In a perfectly competitive market a firm faces a perfectly elastic demand because there is unrestricted entry and exit O if a firm raises its price, it will lose some, but not all, of its customers when a firm sells another unit of output, the addition to total revenue is equal to market price. O all of the above O none of the above

Solution

The answer is first option.

By perfectly elastic demand we mean if the price of a good changes the demand changes by infinite amount. A perfectly elastic demand curve is horizontal in shape. In perfect competition there are large number of buyers and sellers and price is determined by the market force of demand and supply and the firms are price takers. As there is free entry and exit in the market, if a firm charges a higher price than the market price , the firm will loose all its customers as there are other firms who will sell the same product at the market price. Hence ,no consumer will buy the product from that firm.