In which situation does a firm face a downward-sloping demand curve?

A firm faces a downward-sloping demand curve when it has some control over the price it charges for its product. In a monopoly, a single firm is the sole producer of a particular good or service, meaning it can set its price above the competitive level without losing all its customers. Because there are no direct substitutes for its product and no competitors in the market, the monopolist can influence the market price by adjusting the quantity of goods it supplies. As the price rises, the quantity demanded typically falls, leading to a downward-sloping demand curve.

In contrast, firms operating in perfect competition encounter a horizontal demand curve, indicating they are price takers with no influence over market prices. Oligopolistic firms may face a kinked demand curve due to the interdependent nature of their pricing strategies with other firms, while firms in monopolistic competition experience a downward-sloping demand curve but with a more elastic demand than a monopoly due to the presence of close substitutes. Therefore, the characteristic of facing a downward-sloping demand curve is uniquely definitive for a monopoly.