Explain the reasons of nature of demand curves of all the four market structures !
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Answer:
a) Demand curve under perfect competition: In case of perfect competition, there are very large no. of buyers and sellers selling a homogeneous product at a price fixed by the market. Therefore, each firm is a price taker and faces a perfectly elastic demand curve. b) Demand curve under monopolistic competition: Under monopolistic competition, large no. of firms selling closely related but differentiated products makes the demand curve downward sloping. It implies that a firm can sell more output only by reducing the price of its product. c) Demand curve under monopoly: A monopoly firm is like an industry as the single seller constitutes the entire market for the product, which has no close substitutes. So, a monopolist has full freedom and power to fix price for the product. However, demand of the product is not in the control of monopoly firm. In order to increase the output to be sold, the monopolist will have to reduce the price. Therefore, monopoly firm faces a downward sloping demand curve. d) Demand curve under oligopoly: The demand curve for an oligopoly firm is indeterminate, i.e. it cannot be drawn accurately as exact behavior pattern of a producer cannot be ascertained with certainty.