Would you expect the demand for a monopolistically competitive firm's product to be elastic than that...

Would you expect the demand for a monopolistically competitive firm's product to be elastic than that for a monopolist's product? Explain.

Expert Solution

In perfect competition, we assume identical products, and in a monopoly, we assume only one product is available.Monopolistic competition lies in-between. It involves many firms competing against each other, but selling products that are distinctive in some way.

The demand curve as faced by a perfectly competitive firm is perfectly elastic or flat, because the perfectly competitive firm can sell any quantity it wishes at the prevailing market price. In contrast, the demand curve, as faced by a monopolist, is the market demand curve, since a monopolist is the only firm in the market, and hence is downward sloping.

The demand curve as faced by a monopolistic competitor is not flat, but rather downward-sloping, meaning that the monopolistic competitor, like the monopoly, can raise its price without losing all of its customers or lower its price and gain more customers. Since there are substitutes, the demand curve for a monopolistically competitive firm is relatively more elastic than that of a monopoly, where there are no close substitutes.

Rahul Sunny answered 2 years ago

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