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Author Question: How is the demand curve faced by a perfectly competitive firm different from that faced by a ... (Read 77 times)

lb_gilbert

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on: Jun 29, 2018
How is the demand curve faced by a perfectly competitive firm different from that faced by a monopoly? How does it affect their pricing policies?
 
  What will be an ideal response?

Question 2

Other things constant, when households decide to save more, the supply of credit ________ and interest rates ________.
 
  A) falls; rise
  B) falls; fall
  C) rises; rise
  D) rises; fall


verrinzo

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Perfectly competitive firms face a horizontal demand curve for their product, while a monopolist faces a downward-sloping demand curve for its product. A horizontal demand curve implies perfectly elastic demand. This means that if perfectly competitive firms set their product prices above the market price, they lose all of their business. This makes them price takers. On the other hand, the downward sloping demand curve faced by a monopolist implies that a monopolist can sell a lower quantity at a higher price and vice versa. Hence, monopolies have the option of setting the market price for their products, which makes them price makers.

Answer to Question 2

D


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