Review
6. In Figure 9-1 , we explain the difference between the demand
curve for a competitive industry and the demand curve facing an
individual firm in that industry. Review that figure and answer
the following questions.
a. Explain what would happen if the individual firm tried to
charge a higher price for its product.
b. Explain why the individual firm has no incentive to
charge a lower price for its product.
c. Explain why the demand curve for an individual firm is
horizontal at the current market price.
7. Which of the following observed facts about an industry are
inconsistent with its being a perfectly competitive industry?
a. Different firms use different methods of production.
b. The industry’s product is extensively advertised by an
industry association.
c. Individual firms devote a large fraction of their sales
receipts to advertising their own product brands.
d. There are 24 firms in the industry.
e. The largest firm in the industry makes 40 percent of the
sales, and the next largest firm makes 20 percent of the
sales, but the products are identical, and there are 61
other firms.
f. All firms made large profits last year.