In monopolistic competition, product differentiation allows each firm to have a demand that is price elastic but not perfectly elastic.

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Monopolistic competition is characterized by a large number of firms that produce differentiated products. Product differentiation leads consumers to perceive each firm's product as unique, which allows firms to have a certain degree of market power and control over their prices. However, because consumers have multiple options to choose from and can easily switch to substitute products if the price is too high, each firm faces a relatively elastic demand curve. This means that a firm can increase its sales by reducing its price but cannot increase its price without losing some customers to its competitors. Therefore, the demand curve for a firm in monopolistic competition is price elastic but not perfectly elastic.

In Monopolistic Competition, Product Differentiation Allows Each Firm to Have