Explain the difference between the demand curve facing a monopoly firm and the demand curve facing a perfectly competitive firm.

The key
difference between the demand curve in a perfect competition and the demand curve in a monopoly
is their movement. A firm in a perfect competition can sell an unlimited number of goods on a
fixed price because the price of the output is determined by the market and the market
conditions in which the firm operates. In other words, the firm accepts the preexisting price of
the output that has already been established on the market. As a result, the demand curve in a
perfect competition is a straight, horizontal line. In fact, because the competitive firm sells
an article that has a lot of perfect substitutes, it faces a perfectly elastic demand
curve.

On the other hand, because the monopoly is the only manufacturer on
the market, its individual demand curve is also the markets demand curve. This means that it
faces a downward-sloping demand curve. Monopolists can change the price of their output
depending on its quantity in the market. If they increase the price, naturally, the costumers
will buy less of their goods. Furthermore, if they lower the quantity of their output, the price
will go up.