If the demand curve facing a firm is sharply do... - JAMB Economics 2003 Question
If the demand curve facing a firm is sharply downward-sloping, the firm is likely to be
A
a monopolistic competitor as it can have a limited influence on price
B
a monopolist as it can have a great influence on price
C
a perfect competitor as it cannot influence the market price
D
an oligopolist as it can collude with other firms to have some influence on price
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Correct Option: B
A sharply downward-sloping demand curve indicates that the firm has significant market power. This means that the firm can influence the price of its product.
- Monopolists face the entire market demand curve, which is typically downward sloping. They have considerable control over price.
- Monopolistic competitors have some control over price, but their demand curves are typically more elastic (less steep) than a monopolist's.
- Perfect competitors face a perfectly elastic (horizontal) demand curve and have no control over price.
- Oligopolists can have some influence over price, but the key characteristic here is the sharp downward slope.
Therefore, the firm is most likely a monopolist.
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