The price elasticity of a monopolistically competitive firm's demand curve varies
A) inversely with the number of competitors and the degree of product differentiation.
B) directly with the number of competitors and the degree of product differentiation.
C) directly with the number of competitors but inversely with the degree of product differentiation.
D) inversely with the number of competitors but directly with the degree of product differentiation.

Question

Quizplus · Accepted Answer

The price elasticity of demand for a monopolistically competitive firm increases (becomes more elastic) with more competitors, as consumers have more substitutes. However, it decreases (becomes less elastic) with greater product differentiation, as unique features make the product less substitutable.

The Price Elasticity of a Monopolistically Competitive Firm's Demand Curve