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Demand Curve Faced by Competitive Firm/Competitive Market

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1. How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain.

2. A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm's product is $140.

Output FC VC TC TR Profit/Loss

0 $90 $0 _ _ _
1 90 90 _ _ _
2 90 170 _ _ _
3 90 290 _ _ _
4 90 430 _ _ _
5 90 590 _ _ _
6 90 770 _ _ _

3. How does the demand curve faced by a monopoly differ from the demand curve faced by a perfectly competitive firm? Explain.

4. The following table provides market share information about the soft-drink industry.

Company Market Share
Coca-Cola 37%
Pepsi-Co 35
Cadbury Schweppers 17
Other 11

Do you think the Department of Justice and the Federal Trade Commission would approve a merger between any two of the first three companies listed? Explain.

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The solution discusses the market demand curve faced by a competitive firm that differs from a market demand curve in a competitive market.

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Question 1
In a perfectly competitive market, the demand curve faced by a competitive firm is perfectly elastic resulting from the fixed price which is set by the market. Since the market price is established by the interaction of the demand and supply curve, we can say that the higher the price the lower is the amount demanded by the ...

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