In the model of monopolistic competition, an increase in industry output will cause individual firms' demand curves to become ________, which will ________ demand for higher-priced goods and ________ demand for lower-priced goods.

Question

Quizplus · Accepted Answer

In monopolistic competition, each firm faces a downward sloping demand curve since their products are differentiated. Therefore, an increase in industry output will lead to an increase in the availability of substitutes, causing a decrease in individual firms' demand curves, making them flatter. A flatter demand curve implies a greater elasticity of demand, leading to a decrease in demand for higher-priced goods and an increase in demand for lower-priced goods.

In the Model of Monopolistic Competition, an Increase in Industry