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Homework answers / question archive / Two part question: A monopoly sees the demand curve as _____ while a perfectly competitive firm perceives its demand curve as _____ A
Two part question:
A monopoly sees the demand curve as _____ while a perfectly competitive firm perceives its demand curve as _____
A. upward-sloping; flat
B. downward-sloping; horizontal
C. horizontal; upward-sloping
and
the supply curve in the market is higher than optimum if
A. This is a public good market.
B. There are external costs not accounted by the market.
Ans 1 .
B. downward-sloping; horizontal
A monopoly faces a downward sloping demand curve as the the monopolist has to reduce the price to sell more . THE Average Revenue (AR) curve becomes downward sloping .
In perfect competition , AR=MR = Price . As the price is determined by the industry and every seller is selling at the same price , there is no need to reduce the price . The ArRcurve / Demand curve is horizontal i.e parallel to x - axis.
Ans 2 . B. There are external costs not accounted by the market.
When the supply curve is higher than the optimum level , it is called the social cost curve . THis curve takes into the account the social costs that a producer imposes on the society in terms of pollution like water pollution air poluution ,noise pollution etc . These are external costs not accounted by the market .
