Why is knowing or estimating the product demand so crucial f

Why is knowing (or estimating) the product demand so crucial for a firm?

Solution

The reason is quite simple. Whether it is perfect competition or monopoly, monopolistic competition or oligopoly estimating the demand curve helps in profit maximisation. E. G in perfect competition, to maximise profits the firm equates mc with AR or MR. Thus here profit maximisation needs information about Demand or Average revenue curve. Similarly in monopolistic competition firm maximises profit by equating MR with Mc. Both MR and AR can be found only if firm knows demand curve or estimates it. There are other uses of demand curve. E. G knowing the elasticity of demand curve a monopolist can decide whether to discriminate or not