Which of the following statements is correct? Panel C represents the typical dem

Question

Which of the following statements is correct? Panel C represents the typical demand curve for a perfectly competitive firm, and Panel B represents the typical demand curve for a monopoly. Panel B represents the typical demand curve for a perfectly competitive firm, and Panel C represents the typical demand curve for a monopoly. Panel A represents the typical demand curve for a perfectly competitive firm, and Panel B represents the typical demand curve for a monopoly. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel D represents the typical demand curve for a monopoly.

Explanation / Answer

Ans: Panel C represents the typical demand curve for a perfectly competitive firm, and panel B represents the typical demand curve for a monoploy.

Explanation:

This is because all firms in perfect competition are selling an identical product. If all firms are selling an absolutely identical product, there is no possible reason why someone would pay a higher price to Firm A than they would pay to Firm B. Because of this, any firm that raised its price would lose all its market share. The curve is also like this because firms in perfect competition make no economic profit. If they drop their price, they will go out of business. So, they can't raise their prices and they can't lower their prices. That means their demand curves are horizontal.

The fact that the monopolist faces a downwardsloping demand curve implies that the price a monopolist can expect to receive for its output will not remain constant as the monopolist increases its output.Unlike a perfectly competitive firm, the monopolist does not have to simply take the market price as given. Instead, the monopolist is a price searcher; it searches the market demand curve for the profit maximizing price.

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