Question

16) Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is...

16) Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is

a) more elastic because there are many close substitutes for the product of a monopolistically competitive firm.

b) less elastic because monopolistically competitive firms produce similar, but not identical, products.

c) just as elastic because there are many sellers in both markets.

d) more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve.

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Answer #1

Option B

  • Perfectly competitive firms are those firms who sell goods that are close substitutes of each other.
  • While monopolistically competitive firm are those firms who sells similar but not identical goods.
  • Due to many close substitutes,a perfectly competitive firms demand curve is highly elastic.
  • Due to very few substitutes as compared to perfectly competitive firms, monopolistically competitive firms are less elastic than the demand curve facing a perfectly competitive firm.
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