Question

Draw and compare demand curves under perfect competition, monopoly and monopolistic competition.

Answer 1

• Perfect Competition: Demand curve is a horizontal line, perfectly elastic. Firms are price takers and sell at a fixed market price.
• Monopolistic Competition: The demand curve is downward sloping but relatively flat, highly elastic due to many close substitutes. Firms have some pricing power.
• Monopoly: The demand curve is steeply downward sloping, less elastic. The firm is a price maker with no close substitutes.