Product differentiation helps determine the slope of the demand curve facing a firm in monopolistic competition.

Question

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Product differentiation allows firms in monopolistic competition to have some control over the price of their products, which in turn affects the slope of the demand curve they face. A more unique or differentiated product will generally result in a less elastic demand curve, while a less differentiated product will result in a more elastic demand curve.

Product Differentiation Helps Determine the Slope of the Demand Curve