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The Demand Curve for a Perfect Competitor
A perfect competitor has no market power. Since a perfect competitor is unable to affect the
market price for its product, a perfect competitor will face a demand curve for its product that is
horizontal (perfectly elastic) at the market price.
Example 4: Percomp Company is a perfect competitor. Percomp produces about .001% of the
total production in its market. The product that Percomp produces has a market price of $10. If
Percomp increases or decreases the quantity that it produces, this will not have a significant
effect on the supply in the market. The market price will remain at $10. Thus, the demand curve
for Percomp is horizontal at the market price of $10, as illustrated by the demand schedule and
the demand curve below:
$13 -
12 -
11 -
10 -
Price 9-
8-
7-
6-
5-
Percomp Company
Demand Schedule
Price
Quantity Demanded
$10 1
10 2
10 3
10 4
10 5
10 6
10 7
10 8
10 9
Z
0
0 1 2 3 4 5 6 7 8 9
Quantity
D = P
Since a perfect competitor has no market power, a perfect competitor is a price taker. It cannot
“make” the market price change, but must simply “take” the market price as it is. For each of the
three other market structures that we will examine in chapters 22 and 23, firms have at least
some market power. Thus, they are able to affect the market price for their product by increasing
or decreasing their production. But a perfect competitor cannot affect the market price for its
product.
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Perfect Competition 21 - 2