sol_even_10a - Chapter10,Problem2 1 ,and explainwhy a ,...

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Chapter 10, Problem 2 1) State whether the following statements are true or false, and  explain why. a) In a perfectly competitive industry, the industry demand curve is  horizontal, whereas for a monopoly it is downward-sloping. False.
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Perfectly competitive firm: Firms are price-taker, no control and no influence over price. Goal is to choose the optimal output level to maximize the profit. Firms can sell as much as it wishes at the given price level. Therefore, Demand curve is perfectly elastic (horizontal) Price Quantity D
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Imperfectly competitive firm: Have market power:   a firm’s ability to raise the price of a good  without losing all its sales. They are price setter.  Face a negatively sloped Demand curve Price Quantity D
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In the firm’s point of view, Demand curve is horizontal for Perfectly Competitive Firm Demand curve is downward-sloping for Imperfectly Competitive  Firm However, the  industry  demand curve is downward-sloping in BOTH  case.  Supply curve and Demand curve intersect to determine the  equilibrium price.
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2b)  Perfectly competitive firms have no control over the price they charge  for the product. True, according to the assumption of Perfectly Competitive Firm.
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