Demand Function Facing the Firm
Individual firms are constrained by the market price, and face a horizontal demand curve at the market determined price.
(Dwayne Benjamin, Toronto PPG 1002H)
Generally speaking, demand curves tend to slope downward. In a perfectly competitive situation, this is true for the market taken as a whole, but not for individual firms within the market. Individual firms are constrained by the market price, and face a horizontal demand curve at the market-determined price. This means that for a single firm in a competitive market, if it sets the price above this market-determined price, it will not be able to sell anything at all. The market demand curve and the demand curve facing a particular firm are not the same thing.
Definition prepared by students at the University of Toronto School of Public Policy and Governance and edited by Ben Eisen.