Friday, February 4, 2011

Which Market Structure?

Suppose a firm faces a demand curve shaped by the following formula: Q = AP^-1. This curve would be unit elastic and so the total revenue at every point would be the same. This is a downward sloping curve that is convex to the origin. Since the firm can't compete on price, the firm is essentially a price taker. What market structure does this firm operate in?

My answer is that this firm must be an exception to our economic theory. So it's an anomaly. Since the firm will probably use non-price competition, I suggest that the firm is monocomp.

About the Author: Mike Fladien is a high school Economics and Law teacher in Muscatine, Iowa. He has been called the EconHacker because he has a talent for explaining Economics concepts in a simple language that anyone can understand.

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