Question

The demand curve faced by individual firms under monopolistic competition is:

A) perfectly elastic

B) perfectly inelastic

C) downward sloping

D) upward sloping

E) the same as the market demand curve

Answer 1

This is my answer

In a monopolistic competitive market, the market demand is downward sloping and the demand faced by individual firm is downward sloping which is option (c).

In monopolistic competition, each firm sells differentiated products which are close substitutes of the other firm's products but not perfect substitutes. As price rises, demand falls but not entirely as the firm's product is not perfectly substituable i.e demand is elastic not perfectly elastic. Hence, the individual firm's demand is downward sloping. The market demand curve is downward sloping because it is the summation of individual firm's demand curves which are downward sloping.

Thank you..