WHAT IS THE DIFFERENCE BETWEEN PERCEIVED DEMAND AND MARKET DEMAND? The demand curve as perceived by a perfectly competitive firm is not the overall market demand curve for that product. In contrast, a monopoly perceives demand for its product in a market where the monopoly is the only producer.

Demand curve has two types individual demand curve and market demand curve. It displays a graphical representation of demand schedule. It can be created by plotting price and quantity demanded on a graph.

Monopolies have downward sloping demand curves and downward sloping marginal revenue curves that have the same y-intercept as demand but which are twice as steep. The shape of the curves shows that marginal revenue will always be below demand.

(a) A perfectly competitive firm perceives the demand curve that it faces to be flat. The flat shape means that the firm can sell either a low quantity (Ql) or a high quantity (Qh) at exactly the same price (P).

The marginal revenue curve for a monopolist always lies beneath the market demand curve. To understand why, think about increasing the quantity along the demand curve by one unit, so that you take one step down the demand curve to a slightly higher quantity but a slightly lower price.

But the underlying economic meaning of these perceived demand curves is different, because a monopolist faces the market demand curve and a monopolistic competitor does not. Rather, a monopolistically competitive firm’s demand curve is but one of many firms that make up the “before” market demand curve.

A competitive firm’s short-run profit is always zero; a monopolist can have a positive short-run profit.

While a monopolist can charge any price for its product, that price is nonetheless constrained by demand for the firm’s product. Because the monopolist is the only firm in the market, its demand curve is the same as the market demand curve, which is, unlike that for a perfectly competitive firm, downward-sloping.

(b) A monopolist perceives the demand curve that it faces to be the same as the market demand curve, which for most goods is downward-sloping.

The perceived demand curve for a monopolistically competitive firm is downward-sloping, which shows that it is a price maker and chooses a combination of price and quantity. A profit-maximizing monopolistic competitor will seek out the quantity where marginal revenue is equal to marginal cost.

The flat perceived demand curve means that, from the viewpoint of the perfectly competitive firm, it could sell either a relatively low quantity like Ql or a relatively high quantity like Qh at the market price P. (a) A perfectly competitive firm perceives the demand curve that it faces to be flat.

The demand curve as it is perceived by a perfectly competitive firm appears in figure (a). The flat perceived demand curve means that, from the viewpoint of the perfectly competitive firm, it could sell either a relatively low quantity like Ql or a relatively high quantity like Qh at the market price P.

The lower the price, the higher the quantity demanded. As the price decreases from p0 to p1, the quantity increases from q0 to q1. Demand Curve. This relationship follows the law of demand, which states that the quantity demanded will drop as the price rises, all other things being equal.

Because the monopolist is the only firm in the market, its demand curve is the same as the market demand curve, which is, unlike that for a perfectly competitive firm, downward-sloping. This figure illustrates this situation.