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    Question

    Under perfect competition, the firm's demand curve is

    typically perfectly elastic. However, under certain conditions, it may become negatively sloped. What is the most plausible reason for this change?
    A The firm has started producing differentiated products. Correct Answer Incorrect Answer
    B The firm has increased its scale of operations. Correct Answer Incorrect Answer
    C The government has imposed a price ceiling. Correct Answer Incorrect Answer
    D The market structure has shifted towards monopolistic competition. Correct Answer Incorrect Answer

    Solution

    Under perfect competition, a firm's demand curve is perfectly elastic. However, if the market structure shifts towards monopolistic competition, the firm's demand curve may become negatively sloped. This is because in monopolistic competition, firms differentiate their products, giving them some market power and allowing them to face a downward-sloping demand curve.

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