Contrast and discuss the individual demand curve among perfect competition, monopolistic competition and Monopoly.

Expert Solution

Different market structures have individual demand curve of different nature. In perfect competition, the individual demand curve is a horizontal line (perfectly elastic) where the price is equal to marginal revenue and average revenue. But, individual demand curve in monopolistic competition and in monopoly is downward sloping. Here, individual demand curve in the monopolistic competition is highly elastic in nature. It means that slight change in price will lead to the bigger change in the quantity demanded. In contrast to it, individual demand curve to the left side when prices are high, are more elastic and to the right side when prices are low, are inelastic in nature. It is the reason that monopoly firms opt for the production level that can maximize the profit level. Besides, the downward sloping curve shows that the firm has market power.
The slope of the individual demand curve for a monopolistic firm, is higher than that of perfect competition and lower than that of the monopoly in the market.

Rahul Sunny answered 2 years ago

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