Which of the following describes the difference between the demand faced by a fi

Question

Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?

A. The demand facing individual firms tend to be more price-elastic than those for the entire industry.

B. The elasticity of demand for a firm and for an industry is the same.

C. The demand facing individual firms tend to be less price-elastic than those for the entire industry.

D. The income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by an industry.

Explanation / Answer

A. The demand facing individual firms tend to be more price-elastic than those for the entire industry.

The perfectly competitive firm has perfectly elastic demand curve which shows that when price increases slightly then demand of commodity falls by larger amount. On the other hand, increase in price does not affect much the demand curve of an industry.

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