Explain the distinction in perfect conpetition between the market demand curve and the demand curve facing...

Explain the distinction in perfect conpetition between the market demand curve and the demand curve facing a single firm.

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Expert Solution

The market demand curve is a downward sloping curve, while the demand curve of a firm is a horizontal straight line parallel to X-axis as shown the following graph by the curve market as D.

The market demand curve shows the inverse relationship between price and quantity demanded as per the law of demand. So, the price of a good in a competitive market is determined by the intersection of demand and supply curve as shown in the left side graph. Since the firms are price takes and does not have power to alter price, that's why firms has to sell as much quantity as possible at the current market price which is determined by the market forces of demand and supply.

Rahul Sunny answered 1 year ago

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