<p>What you're doing when you calculate <span class="math-container">$dQ/dP$</span> is assuming that all forms change their process by <span class="math-container">$dP$</span>. This is the same as saying that the market price changes by <span class="math-container">$dP$</span> and is why you get the same number.</p>

<p>The main difference here is that when the book says price elasticity of demand is higher for an individual firm, it means that, <em>holding the prices of other firms constant</em>, a 1 percent change in a firm's price would result in a greater change in quantity demanded than when all forms change the price.</p>

CC BY-SA 4.0
2019-11-02T08:07:49.963Z
2019-11-02T08:07:49.963Z
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<p>In Section 10.2, Monopoly Power, in Pindyck's text on Microeconomics, an example says that suppose <span class="math-container">$N$</span> firms produce a particular product and the market demand curve is <span class="math-container">$P = -aQ + b$</span>. <strong><em>An individual firm is likely to face a demand curve which is more elastic than the market demand curve.</em></strong></p>

<p>Problem here is, while finding the individual demand curve, we first find <span class="math-container">$Q = (b-P)/a$</span>, which is the market demand. We divide this by <span class="math-container">$N$</span> to get the individual firm's demand curve, given by <span class="math-container">$Q = (b-P)/Na$</span></p>

<p>If I compute the elasticity of demand in both cases, which is just equal to <span class="math-container">$(dQ/dP)(P/Q)$</span>, I get the same value, which is not expected. Is there some mistake in my calculation, for finding the elasticity? Could someone please explain what's going on, and possibly show the exact calculation.</p>

<p>A good check would be that as <span class="math-container">$N \to \infty$</span>, there is perfect competition and hence perfectly elastic demand (right?)</p>

<p>Thank you!</p>

<microeconomics><supply-and-demand>
Individual Firm and Market Demand Curve
stoic-santiago
# Individual Firm and Market Demand Curve

(Asked by: username_0 on 2019-11-02)

In Section 10.2, Monopoly Power, in Pindyck's text on Microeconomics, an example says that suppose $N$ firms produce a particular product and the market demand curve is $P = -aQ + b$. ***An individual firm is likely to face a demand curve which is more elastic than the market demand curve.***

Problem here is, while finding the individual demand curve, we first find $Q = (b-P)/a$, which is the market demand. We divide this by $N$ to get the individual firm's demand curve, given by $Q = (b-P)/Na$

If I compute the elasticity of demand in both cases, which is just equal to $(dQ/dP)(P/Q)$, I get the same value, which is not expected. Is there some mistake in my calculation, for finding the elasticity? Could someone please explain what's going on, and possibly show the exact calculation.

A good check would be that as $N \to \infty$, there is perfect competition and hence perfectly elastic demand (right?)

Thank you!

**Tags:** microeconomics, supply-and-demand


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## 1 answers

### Answer by username_1 on 2019-11-02. Score: 3 | Accepted answer

What you're doing when you calculate $dQ/dP$ is assuming that all forms change their process by $dP$. This is the same as saying that the market price changes by $dP$ and is why you get the same number.

The main difference here is that when the book says price elasticity of demand is higher for an individual firm, it means that, *holding the prices of other firms constant*, a 1 percent change in a firm's price would result in a greater change in quantity demanded than when all forms change the price.


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