Question

Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry? A. the demand facing individual firms tend to be more price-elastic than those for the entire industry. B. the elasticity of demand for a firm and for an industry is the same. C. the demand facing individual firms tend to be less price-elastic than those for the entire industry. D the income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by and industry

Answer 1

Answer: Option (A) is correct.

Explanation:

In an industry, there are large number of firms and price is determined by the market forces. Price is more elastic in case of single firm as compared to the industry which consists of many firms. This is due to the influence of the single firm on the price level. Suppose there is a competitive market conditions means that there are large number of buyers and sellers. So, if an individual firm tries to increase their product prices, then this will results in zero demand for their product or very minimal demand because equilibrium market price is lower than the individual firm's price. Therefore, demand faced by a single firm is more price elastic.