Imperfect Competition 1. Explain the difference between the demand
curve facing a monopoly firm and the demand
curve facing a perfectly competitive firm.
2. Which of the following is (are) most likely to be
produced in a market resembling a monopoly
oil, books or movies, tap water, and wheat.
Defend your answer in economic terms.
3. Which type of firm is most likely to have zero
economic profit in the long-run: monopoly,
oligopoly, monopolist competition or perfect
competition? Explain.
4. The government often has two conflicting roles.
It protects consumers by keeping prices
fair and promotes a free market (entry of firms).
Suppose your firm has a special patent. Do you
think patent licenses should expire? Be sure to
support your argument with references and
economic concepts from previous modules as
well. Answer Preview
..Module 4 Case. Explain the difference between the demand curve facing a monopoly firm and the demand curve facing a perfectly competitive firm. The demand curve for a perfectly competitive firm is perfectly elastic. Primarily, this is due to the existence of competitive firms in the market. As such, the product or se
rvice price in this industry is determined by the competitiveness whereby each firm has to conform to the set price (Kwat, 2014). The existence of the perfectly elastic curves for the competitive firm is due to the existence of other alternatives. With this, an increase in price, which is higher relative to other competitors, result in reduced demand for the product as the consumers shift to the existing alternatives. Therefore, the most important goal of the perfectly competitive firm is to earn highest possible profits by maintaining prices relative to that of its competitors. On the other hand, the demand curve of a monopoly firm slopes downward (Kwat, 2014. Specifically, this is because the market price is determined by the monopoly. Besides, consumers will forgo the purchase of the monopoly products with an increase in its prices (Kwat, 2014. Despite this, the curve might be steep, particularly in products that are deemed necessary for the consumers. Therefore, the monopoly firm has an inelastic demand curve whereby consumers will refrain from purchasing the products with an increase in its prices
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