Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

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Monopolistically competitive firms have some degree of monopoly power due to product differentiation, which means they can charge a higher price than perfectly competitive firms. However, they still face competition from other firms in the industry, which limits their ability to raise prices significantly. As a result, the demand curve is downward sloping but not perfectly elastic, and the marginal revenue curve is also downward sloping and lies below the demand curve. A firm in a monopolistically competitive market must take into account the impact of its price on the quantity demanded by its own customers as well as the customers of other firms in the industry. This mutual interdependence among firms in the industry also means that collusion (choice D) is unlikely, as each firm has an incentive to cheat and undercut its rivals.

Demand and Marginal Revenue Curves Are Downward-Sloping for Monopolistically Competitive