Question

1. Perfect competition vs. monopoly:

a) What is the difference between the demand curve faced by a perfectly competitive firm and a perfectly competitive industry and a monopolist firm?

b) What is the difference between the total revenue curve faced by a perfectly competitive firm and a monopolist firm? How about the marginal revenue curve?

Answer 1

(a) Demand curve faced by a perfectly competitive firm is Horizontal to X axis . In a perfectly competitive industry demand curve is downward sloping and the price of the commodity is fixed where demand and supply is equal and all the firms adopt this price so the AR of the firm is one and same. Where as in a monopolist firm demand curve of the firm is less than perfectly elastic and it slop downward .

(b)The difference between the total revenue curve faced by a perfectly competitive firm and a monopolist firm is that in perfect completion TR increase equally same because AR is same for all quantity , but in monopoly AR decreases after each quantity so the TR increases but in decreasing amount .Like if in perfect competition TR would rise 120,240,360,480 and so on with the difference of 120. And in monopoly it would increase like 15,28,39,48,55 and so on with a difference of decreasing AR .

In perfect completion MR would coincide with AR and Horizontal . In monopoly it is down ward and fall quickly than AR so it is always lower than AR.