The graph below shows the Chamberlin model. One would expect the demand curve facing a monopolistically competitive firm to be
A)more elastic than a monopoly in the same industry.
B)less elastic than a monopoly in the same industry.
C)more elastic than a perfectly competitive firm in the same industry.
D)as elastic as a monopoly in the same industry.

Question

The graph below shows the Chamberlin model. One would expect the demand curve facing a monopolistically competitive firm to be 
A)more elastic than a monopoly in the same industry. 
B)less elastic than a monopoly in the same industry. 
C)more elastic than a perfectly competitive firm in the same industry. 
D)as elastic as a monopoly in the same industry.

Quizplus · Accepted Answer

In Chamberlin model, the monopolistically competitive firm faces a downward-sloping demand curve, which means there are substitutes available for consumers. Therefore, if the monopolistically competitive firm raises its price too much, consumers can switch to other similar products, resulting in a highly elastic demand curve. Hence, the demand curve facing a monopolistically competitive firm is more elastic than a monopoly in the same industry.

The Graph Below Shows the Chamberlin Model