Which of the following is true of a perfect market situation?

Analyze the question: It asks which statement is true of a perfect market (perfect competition). We need to recall the features of a firm's demand and revenue curves under perfect competition.

Concept: In perfect competition:

• There are many buyers and sellers, and each firm is a price taker.
• The firm faces a perfectly elastic (horizontal) demand curve at the market price.
• Each extra unit is sold at the same price, so: • Average Revenue (AR) = Price, because AR = TR/Q = P×Q/Q = P • Marginal Revenue (MR) = Price, because each extra unit adds exactly P to revenue • The firm's demand curve (DD) is the horizontal line at that price

So Price = AR = MR = DD.

Checking the options:

• A. price = AR = MC = AC: This holds only at long-run equilibrium, not at all times. It is also written oddly, so it is not the general truth.
• B. price = DD = MC = AC: Again, MC = AC holds only in long-run equilibrium, so it is not always true.
• C. price = AC = MC = AR: This is the same long-run equilibrium condition, not a defining feature.
• D. price = AR = MR = DD: This is always true for a perfectly competitive firm, in the short run and the long run.
• E. price = MR but MR < AR: This is wrong. In perfect competition MR = AR. MR < AR is true for a monopoly.

Answer: D.

Tip: Remember "PAM-D" (Price, AR, MR, Demand), which are all equal and horizontal for a perfectly competitive firm. If MR is less than AR, think monopoly or imperfect competition.