Question

What is the difference between a monopolist’s demand curve and a perfectly competitive firm’s demand curve? Why are they different?

Answer 1

Answer.) The demand curve of perfectly competitive firm is perfectly elastic and demand curve of monopoly is downward sloping . The main reason in this difference is because perfectly competitive firm is a price taker firm and monopoly is a price maker firm . Because monopoly has no substitute for its product/service it can charge a price that is favorable to the firm. Yet, the monopoly can't abuse market price as it has to choose a price-quantity combination that is available on downward sloping demand curve. It can charge a high price but have to forgone higher sales level. Remember that a perfectly competitive firm is selling a homogeneous product with many close substitutes available in market. A competitive firm can sell as much quantity as it want at current price level.