Question
Quesiton 4 (2 points) Consider the market for wheat which is a perfectly competitive market. Is...
Quesiton 4 (2 points) Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically,
Answers
No,
In a competitive market, each firm sells only a small fraction of the entire industry sales, how much output the firm decides to sell will have no effect on the market price.
The market price is determined by the industry demand and supply curves. Thus, the competitive firm is a price-taker.The firm’s production will have no effect on the price of the product.
The firm is a price-taker, the demand curve, d; facing an individual firm is given by a horizontal line.
The market demand curve, D, shows how much wheat all consumers will buy at each possible price.
The market demand curve is downward-sloping because consumers buy more wheat at a lower price. The demand curve, d, facing the firm is horizontal because the firm’s sales will have no effect on the price. Price is determined by the interaction of all firms and consumers in the market, not by the output decision of a single firm.
The demand curve, d, facing an individual firm in a competitive market is both its average revenue curve and its marginal revenue curve. Along this demand curve, marginal revenue and price is equal.
Demand curve of individual Price -P=AR=MR Market demand cunce Price Qdy
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