Author Question: How does the demand curve facing a monopoly firm compare with the demand curve facing a perfectly ... (Read 118 times)

sarasara · **on:** Jun 29, 2018

How does the demand curve facing a monopoly firm compare with the demand curve facing a perfectly competitive firm?

What will be an ideal response?

Question 2

Refer to Figure 4-9. As a result of the tax, is there a loss in producer surplus?

A) Yes, because producers are not selling as many units now.
B) No, because producers are able to raise the price to cover their tax burden.
C) No, because the market reaches a new equilibrium
D) No, because the consumer pays the tax.

LVPMS · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The demand curve facing a perfectly competitive firm is perfectly elastic (horizontal). This occurs because a firm in a perfectly competitive market is a price taker with no control over price. In contrast, the demand curve facing a monopolist is the market demand curve since it is the only producer in the market. Thus, it will be downward sloping.

Answer to Question 2

A