Which of the following best explains why firms in monopolistic competition face a downward-sloping demand curve while perfectly competitive firms do not?

Question

Quizplus · Accepted Answer

Firms in monopolistic competition sell a differentiated good, meaning that consumers perceive their products as unique from those of competitors. As a result, each firm faces a downward-sloping demand curve, which reflects the fact that consumers are willing to pay a premium for their particular product. In contrast, perfectly competitive firms sell an identical product, meaning that any attempt to raise prices would cause them to lose market share to other firms. Therefore, perfectly competitive firms face a horizontal demand curve, indicating that they must accept the market price in order to sell any output.

Which of the Following Best Explains Why Firms in Monopolistic