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In: Economics

When analyzing the different market structures, we have learned that the demand curve faced by a...

When analyzing the different market structures, we have learned that the demand curve faced by a perfectly competitive firm is different from that faced by a monopoly? How do the two demand curves differ? How does that affect pricing policies?

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Expert Solution

The demand curve for the perfectly competitive firm is a horizontal straight line and the demand curve for the monopoly is downward sloping. The demnd curve indiactes the market power of firms in the two markets, the perfectly competitive firms has no control over the price and the firms are price takers and the demanc curve for them is perfectly elastic. If one firms charges a price no one would buy the products of the firm and people substitute the product for another. The demand curve for monopoly downward sloping, the firm is the sole producer of a good or service in the market. The demand curve for the monopolist satisfies the law of demand that is when the price of the product or service increases people consume less of it.

By comparing the perfectly competitive firm and the monopolist, the monopolist has got the flexibility in pricing. The perfectly competitive firms cannot even think of changing their price. The monopolist has got more market power than the perfectly competitive firm.

Rahul Sunny answered 2 years ago
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