Because a monopolistically competitive firm faces competition from substitute products sold by rivals, its demand curve is more elastic than the demand curve of a pure monopoly.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms sell products that are substitutes but differentiated from each other, leading to more elastic demand because consumers can switch to other products more easily compared to a pure monopoly where the firm is the sole provider, making its demand less elastic as there are no close substitutes.

Because a Monopolistically Competitive Firm Faces Competition from Substitute Products