Question

Match the following market structures with the properites of their demand curves.

• A. Horizontal line
• B. Downward, flat
• C. Kinked curve
• D. Downward, steep

Answer 1

(i) In a monopolistic competition, firms sell differentitated products that are close substitutes, thus they face a downward sloping demand curve that is slightly flat.

(ii) In a perfectly comptetitive market, the firm faces a horizontal, perfectly elastic demand curve.

(iii) In an oligopoly, firms face a kiked demand curve because of price rigidity.

(iv) A monopoly firm faces an inelastic, steep, downward sloping demand curve.