Question

a. The demand curve faced by a purely monopolistic seller is

• perfectly elastic, whereas that facing the purely competitive firm is perfectly inelastic.

• downward sloping, whereas that facing the purely competitive firm is perfectly elastic.

• perfectly inelastic, whereas that facing the purely competitive firm is perfectly elastic.

• downward sloping, whereas that facing the purely competitive firm is perfectly inelastic.

b. The demand curve facing a

• purely competitive firm is downsloping, because the purely competitive firm is faced by a normal downward-sloping industry demand curve.

• purely competitive firm is perfectly elastic, because the purely competitive firm may sell all that it wishes at the equilibrium price.

• pure monopolist is downsloping, because the firm’s supply is so small a part of the total industry supply that it cannot affect the price.

• pure monopolist is perfectly inelastic, because a pure monopolist may choose any desired price and quantity combination.

c. The pure (profit maximizing) monopolist’s demand curve is not

• perfectly inelastic, because MR is negative when demand is inelastic, so MR = MC < 0.

• perfectly elastic, because the firm will still have some competitors even if they are not close.

• perfectly inelastic, because MR < MC when demand is inelastic, so the price would be falling.

• downward sloping, because MR is negative when demand is elastic, so MR = MC < 0.

rev: 10_28_2017_QC_CS-107431

Answer 1

a.

Since the demand curve of the pure monopolistic competitive firm is downward sloping and the demand curve of the pure competitive firm is perfectly elastic or horizontal line.

Hence it can be said that the demand curve faced by a purely monopolistic seller is downward sloping, whereas that facing the purely competitive firm is perfectly elastic.

Hence option second is the correct answer.

b.

Similarly it can be said that the demand curve facing a purely competitive firm is perfectly elastic, because the purely competitive firm may sell all that it wishes at the equilibrium price. The competitive firm is a price taker.

Hence option second is the correct answer.

c.

Since the monopolist firm demand curve is downward sloping and MR is below the demand curve. This is because for selling an additional unit of output firm need to decrease the price level.

Hence it can be said that the pure (profit maximizing) monopolist’s demand curve is not perfectly inelastic, because MR is negative when demand is inelastic, so MR = MC < 0.

Hence option first is the correct answer.