Question

Is the resource demand curve of a firm operating in an imperfectly competitive industry more or less elastic than the resource demand curve of a firm operating in a perfectly competitive industry? Is a firm operating in an imperfectly competitive industry more or less responsive to resource price changes than a firm operating in a perfectly competitive industry?

Answer 1

1. The resource demand curve of a firm operating in an imperfectly competitive industry is less elastic than the resource demand curve of a firm operating in a perfectly competitive industry.

2. A firm operating in an imperfectly competitive industry is less responsive to resource price changes than a firm operating in a perfectly competitive industry.

Step-by-step explanation:

In an imperfectly competitive industry, the goods and services are heterogeneous, with few sellers and buyers, competition for market share, and the sellers are not price-takers. Since they are not identical, and sellers are not price-takers as in a perfectly competitive market, the sellers can increase prices when a resource price (cost) has increased, and still they earn economic profits. However, their ability to earn profits will depend on the quantities of goods produced and sold.