Differences between monopolistically and perfectly competitive firms with respect to the slope of the demand curve...

Differences between monopolistically and perfectly competitive firms with respect to the slope of the demand curve (and price elasticity) facing an individual firm—why?

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Expert Solution

The firms in the perfectly competitive market are selling the goods that are completely homogenous and any change in the price will reduce the demand to zero, they are the price takers in the market. So the demand curve of these firms are perfectly elastic i.e. a horizontal line in the market.

For the monopolistic firm they have some control over the price of the goods i.e. if they reduce the price of the goods the demand will increase that make the demand curve downward sloping.

Rahul Sunny answered 1 year ago

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