The downward-sloping demand curve of a monopolistic competitor:
A) reflects product differentiation.
B) becomes horizontal in the long run.
C) indicates collusion among the members of the product group.
D) ensures that the firm will produce at minimum average cost in the long run.

Question

Quizplus · Accepted Answer

The downward-sloping demand curve of a monopolistic competitor reflects product differentiation, which means that the firm can charge a higher price for its unique product. This leads to a lower elasticity of demand and a steeper demand curve. In the long run, the curve might become more elastic as new rivals enter the market, but it is not horizontal. The curve does not indicate collusion, and it does not ensure that the firm will produce at minimum average cost in the long run.

The Downward-Sloping Demand Curve of a Monopolistic Competitor