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Describe the demand curve perceived by the perfectly competitive firm and the demand curve perceived by...

Describe the demand curve perceived by the perfectly competitive firm and the demand curve perceived by a monopolist. How are they different and how can you explain the reasoning behind these differences?

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Answer #1

The demand curve perceived by a competitive firm is horizontal or perfectly inelastic.This is because the market sells homogeneous goods.The products of all firms are identical.Because of this feature the firm becomes a price taker and has no influence over the price.

The demand curve perceived by a monopolist is inelastic.A monopolist sells unique good or a good with no close substitues.Thus,it can charge higher price for a lower quantity.

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