A monopolistically competitive firm faces a relatively elastic demand curve than a monopolist firm because of the:
A)presence of a large number of buyers and barriers to entry.
B)presence of a large number of firms and easy entry.
C)production a perfectly homogeneous products.
D)production of unique products and presence of barriers to entry.
E)production of goods that are perfect complements of each other.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms face competition from a large number of other firms producing differentiated products, which makes their demand relatively elastic. In contrast, a monopolist faces less competition and may have a more inelastic demand curve due to the lack of close substitutes for their product. Choice A and D refer to barriers to entry, which are not features of monopolistic competition. Choice C refers to perfect competition, a market structure with homogeneous products and no barriers to entry. Choice E refers to goods that are perfect complements, which is not relevant to the question.

A Monopolistically Competitive Firm Faces a Relatively Elastic Demand Curve