Demand Curve of a Firm

The demand curve faced by a film has different elasticities depending upon the market structure in which it functions. If the firm is the only producer or seller in the market (i.e., the firm. is a monopolist) then it faces an Inelastic demand curve as shown in fig. (e). Under monopoly, single firm constitutes industry therefore the demand curve of a company is the market demand curve. Railways, electricity and ether public utilities fall under this category.

At the opposite extreme is perfect competition, In such a market form, there are large number of firms selling identical products and each firm is too small to affect the price. The firm is a price taker and faces a horizontal demand curve as shown in Fig. (a). The firm can sell any amount at the price set by the industry demand and supply.

Under monopolistic competition there are many firms selling differentiated products like toothpastes, tea and textiles. The firm has some degree of control over the price. Firm selling different brands of a good may behave like a monopolist. As a result, the demand curve, though negatively sloped, is flatter than in monopoly market so that an increase in price will lead to a very large decline in sales. Fig.  (c) represents such a curve.

A number of firms fall under the category of oligopoly. An industry in such a market form comprises only a few firms producing either identical (like steel and cement) or differentiated products (like automobiles and soft drinks). Since there are a few sellers in the industry, firms-compete on' both price and- non-price factors such as advertising and other promotional activities. This-gives rise to rivalry amongst the firms that makes the demand curve indeterminate. Kinked demand curve explains price rigidity prevalent under this market form. 

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