Practice question · Multiple choice
A farmer selling wheat and a pharmaceutical firm holding a patent face the same demand curve for their own product in name only. What is the actual difference?
Hints
- What happens to the farmer's sales if he asks one cent above the market price?
- Ask who each firm's demand curve belongs to: the market's, or its own?
Show the answer
D. The farmer is a price taker; the patent holder chooses a point
Why
Raise the wheat price by a cent and sales go to zero, that flat line is what 'price taker' means geometrically. The patent holder owns the market curve and picks a quantity on it, so market power is nothing more mysterious than the slope of the line you face.
Practise Market Structures
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