There are many cattle ranchers in the world, and there are also many McDonald's restaurants in the world. Why, then, does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?
What will be an ideal response?
All cattle ranchers are selling identical goods, but fast food restaurants do not sell identical goods. If a cattle rancher raises his price above the market price, he will lose all of his buyers. A McDonald's restaurant can raise its price without losing all of its buyers because it is selling a product that is not identical to the products sold by other restaurants.
You might also like to view...
If a person produces capital goods, she sacrifices current production of consumer goods in order to obtain the capability of producing more goods and services in the future. This is called roundabout production
a. True b. False
A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18 . From this information we can infer that
a. the firm is currently maximizing its profit. b. the profits of the firm are negative. c. firms are likely to leave this market in the long run. d. All of the above are correct.