What is the demand curve like for a perfectly competitive firm?

In a perfectly competitive market, the demand curve for an individual firm is horizontal or perfectly elastic. This situation arises because each firm is a price taker, meaning it accepts the market price as given and cannot influence it through its own output levels.

In a perfectly competitive market, there are many firms selling identical products, which leads to consumers having many alternatives available. If any single firm tries to charge a price above the market equilibrium, customers will simply switch to purchasing from rival firms offering the same product at the lower market price. Consequently, the firm can sell any quantity of its product at the market price, but not more, leading to a horizontal demand curve that reflects this perfectly elastic nature.

This characteristic of perfect competition is fundamentally different from other market structures, such as monopolistic or oligopolistic ones, where firms have some degree of pricing power and experience downward-sloping demand curves. In summary, the horizontal demand curve in a perfectly competitive market signifies that the firm has no control over the price and must accept the market price for the goods it sells.