Question

Compare the demand curve for the product of a firm under perfect competition with that of a firm under monopoly and explain the difference, if any.

Answer 1

Under Perfect Competition: 

• The demand curve for an individual firm is a horizontal straight line, meaning it is perfectly elastic.
• This indicates that the firm can sell any amount of output at the prevailing market price, but cannot charge a higher price.
• The firm is a price taker, not a price maker.

Under Monopoly:

• The demand curve is downward sloping, meaning it is less elastic.
• A monopolist is the sole seller in the market and faces the entire market demand.
• To sell more units, the monopolist must reduce the price, which is why the demand curve slopes downward.
• The monopolist is a price maker.