Okay I'm really confused, in my book it says "regardless of how the market (whether it is owned by a monopoly or many different firms in a competitive market) is organised, the demand curve that the sellers face is the same".

So I interpret this as:

Say there are many hairdressers in Melbourne, then in a competitive market, no sellers can influence the price, the supply curve will slope upwards and demand curve will slope downwards and the competitive market will reach competitive equilibrium.

However for a market owned by a monopolist, then the demand curve shouldn't change (as my book says) because the monopolist still faces the same consumers out there, but since they are the only firm (using my previous example, hairdresses), then they can set the price to whatever they want as long as they earn economic profit. [This price would occur at the intersection of the marginal revenue and marginal cost curve.]

However my lecturer just said "a competitive seller in the competitive market faces a perfectly elastic demand curve"


Doesn't my book say the demand curve doesn't change?
Why would the seller face a perfectly elastic demand curve? Shouldn't the seller still face the entire consumer demand? (all the consumers out there), so the demand should still be downward sloping?

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1 Answer

A perfectly competitive market has other firms that serve the demand. Hence, a competitive firm doesn't serve the entire market (the original market demand curve), but serves a smaller segment of the market. As this segment of the market can access perfect substitutes (another firm selling another good), therefore the curve is perfectly elastic.

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