# Demand - Is The Demand Curve For PC Firm Really Flat?

Is The Demand Curve For PC Firm Really Flat?

Practically every introductory microeconomics text describes the demand curve facing a perfectly competitive firm as being flat or horizontal. A horizontal demand curve is perfectly elastic. If there are n identical firms in the market then the elasticity of demand PED facing any one firm is

PEDmi = nPEDm - (n - 1) PES

where PEDm is the market elasticity of demand, PES is the elasticity of supply of each of the other firms, and (n -1) is the number of other firms. This formula suggests two things. The demand curve is not perfectly elastic and if there are a large number of firms in the industry the elasticity of demand for any individual firm will be extremely high and the demand curve facing the firm will be nearly flat.

For example assume that there are 80 firms in the industry and that the demand elasticity for industry is -1.0 and the price elasticity of supply is 3. Then

PEDmi = nPEDm - (n - 1) PES,
PEDmi = (-1) - (80 - 1) 3,
PEDmi = -1(80) - (79 x 3)
PEDmi = -80 - 237 = - 317

That is the firm PED is 317 times as elastic as the market PED. If a firm raised its price "by one tenth of one percent demand would drop by nearly one third." if the firm raised its price by three tenths of one percent the quantity demanded would drop by nearly 100%. Three tenths of one percent marks the effective range of pricing power the firm has because any attempt to raise prices by a higher percentage will effectively reduce quantity demanded to zero.

Read more about this topic:  Demand

### Other articles related to "is the demand curve for pc firm really flat, demand, firm, flat, firms":

Demand (economics) - Is The Demand Curve For PC Firm Really Flat?
... every introductory microeconomics text describes the demand curve facing a perfectly competitive firm as being flat or horizontal ... A horizontal demand curve is perfectly elastic ... If there are n identical firms in the market then the elasticity of demand PED facing any one firm is PEDmi = nPEDm - (n - 1) PES where PEDm is the market ...

### Famous quotes containing the words firm, curve and/or demand:

With wavering steps does fickle fortune stray,
Nowhere she finds a firm and fixed abode;
But now all smiles, and now again all frowns,
She’s constant only in inconstancy.
Ovid (Publius Ovidius Naso)

And out again I curve and flow
To join the brimming river,
For men may come and men may go,
But I go on forever.
Alfred Tennyson (1809–1892)

The basis of political economy is non-interference. The only safe rule is found in the self-adjusting meter of demand and supply. Do not legislate. Meddle, and you snap the sinews with your sumptuary laws.
Ralph Waldo Emerson (1803–1882)