Final answer:
The demand curve faced by a perfectly competitive firm is flat and perfectly elastic, allowing the firm to sell any quantity it wishes at the prevailing market price. In contrast, a monopolist perceives the demand curve as the market demand curve, which is downward sloping. A monopolistically competitive firm faces a demand curve that falls in between monopoly and competition.
Step-by-step explanation:
A perfectly competitive firm perceives the demand curve that it faces to be flat. The flat shape means that the firm can sell either a low quantity (Ql) or a high quantity (Qh) at exactly the same price (P).
A monopolist perceives the demand curve that it faces to be the same as the market demand curve, which for most goods is downward-sloping. Thus, if the monopolist chooses a high level of output (Qh), it can charge only a relatively low price (Pl); conversely, if the monopolist chooses a low level of output (QI), it can then charge a higher price (Ph). The challenge for the monopolist is to choose the combination of price and quantity that maximizes profits.
A monopolistically competitive firm perceives a demand for its goods that is an intermediate case between monopoly and competition. Figure 10.2 offers a reminder that the demand curve that a perfectly competitive firm faces is perfectly elastic or flat, because the perfectly competitive firm can sell any quantity it wishes at the prevailing market price. In contrast, the demand curve, faced by a monopolist, is the market demand curve, since a monopolist is the only firm in the market, and hence is downward sloping.