The demand curve faced by a monopolistically competitive firm
A) is more elastic than the monopolist's demand curve.
B) is less elastic than the monopolist's demand curve.
C) will shift outward as new firms enter the industry.
D) is more elastic than the demand curve faced by the purely competitive firm.

Question

Quizplus · Accepted Answer

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve because there are many close substitutes available for consumers to choose from in the monopolistically competitive market structure. This means that if the monopolistically competitive firm increases its price, consumers will be more likely to switch to a substitute product, leading to a larger decrease in quantity demanded.

The Demand Curve Faced by a Monopolistically Competitive Firm