Final answer:
In summary, a perfectly competitive firm faces a perfectly elastic demand curve and is a price taker, while a monopoly faces a downward-sloping demand curve, reflecting its market power to set prices by altering output.
Step-by-step explanation:
The demand curves for competitive firms and monopoly firms illustrate key differences between the two market structures. A perfect competitor, which faces a perfectly elastic demand curve, can sell any quantity of its product at the prevailing market price with no ability to influence this price. In contrast, a monopoly faces the market demand curve and can influence the price of its output by adjusting the quantity it supplies. To sell more units, a monopolist must lower the price.
The key distinction between competitive firms and monopolies is the monopoly's market power—the ability to influence the price of its product. Since a competitive firm is one of many in the market, it cannot affect the market price, and thus it is a price taker. In contrast, a monopoly, being the sole provider of a unique product without close substitutes, can exert significant control over the price by altering its output levels, a situation reflected in its downward-sloping demand curve.