Question

How does the demand curve faced by a monopolistic competitive firm look like? Explain why it is sloped this way, and what this implies about the relationship that exists between price and marginal revenue under monopolistic competition.

Answer 1

ans....
monopolistic market structure is a combination resembles perfect from perfect competition and monopoly. monopolistic competition resembles perfect competition to a large extent, the only exception being that there is a certain amount of product differentiation.
the demand curve in a monopolistic market slopes downward, which has some basic assumptions in the market.
the reason is, when the price decreases the demand for the product will be increases and vice versa.
the downward slope of demand curve signifies that the firms in this industry have market power. this power helps them to increase the number of customers without decreasing its price.
here the marginal revenue curve have a deep down ward slope, means if the price decreases highly, the marginal revenue also declines drastically.
in this market the price of hte product can be fixed based on average revenue and average total cost. the intersect point can be decides the price of the product and the quantity of output.