Monopoly power comes from a firm's ability to set prices. This ability is dictated by the shape of the demand curve facing that firm. If the firm faces a downward sloping demand curve, it is no longer a price taker but rather a price setter. In our perfect competition model, we assume there exist multiple participants, and because there are so many participants, the slice of the demand curve each firm sees is but a flat line. These firms are price takers. There is a medium between monopoly and perfect competition in which only a few firms exist in a market. None of these firms faces the entire demand curve in the way a monopolist would, but each does have some power to set prices. A small collection of
This is the end of the preview.
access the rest of the document.