Which of the following statements is TRUE about the relationship between a firm's demand curve under perfect competition and monopoly?
A) Under perfect competition, the demand curve is perfectly elastic; under monopoly, the demand curve has elastic, unit-elastic and inelastic portions.
B) Under monopoly, the demand curve is perfectly elastic; under perfect competition, the demand curve has elastic, unit-elastic and inelastic portions.
C) The demand curves for a monopoly and perfect competition are always inelastic.
D) We can define a demand curve under perfect competition but not under monopoly.

Question

Quizplus · Accepted Answer

Under perfect competition, the demand curve of a firm is perfectly elastic, meaning that the firm cannot sell their output at a higher price than the market equilibrium price. Under monopoly, the demand curve has elastic, unit-elastic, and inelastic portions because the firm has some degree of control over the price due to the absence of close substitutes. Therefore, Choice A is the correct statement. Choice B is incorrect because it wrongly states that the demand curve is perfectly elastic under monopoly. Choice C is a false statement because elasticity of demand depends on the degree of monopoly power and market structure. Choice D is also incorrect because we can define the demand curve under monopoly as the relationship between the price and the quantity demanded by consumers.

Which of the Following Statements Is TRUE About the Relationship