Question

Under monopolistic competition:

a. firms face a downward-sloping demand curve.

b. firms have no monopoly power.

c. a single seller serves the market.

d. firms can sell all the output they wish without affecting the price.

Answer 1

Monopolistic competition is a market structure in which there are a large number of buyers and sellers who are producing differentiated products which give the firms some monopoly power to charge a little higher price. As the firm has to lower the price to increase their sales, demand curve of monopolistic competition is downward sloping.

So, from the given four points, Point A is true as monopolistic competition has downward sloping demand curve. Point B is false because firms produce differentiated products which give them the power to set their own price so, they have a slight monopoly power, Point C is false as there are numerous sellers in the market and Point D is also false because the demand curve is downward sloping that means they cannot sell more output without lowering the price.