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Monopolistic competition. How do you think firms in these markets will be able to react to...

Monopolistic competition. How do you think firms in these markets will be able to react to changes in the market based on identical products? ( Coca Cola & Pepsi are similarly priced on the shelves). 100 words
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In monopolistic competition, every firm has a certain degree of monopoly power i.e.every firm can take initiative to set a price. Here, the products are similar but not tidentical, therefore there can never be a unique price but the prices will be in agroup reflecting the consumers’ tastes and preferences for differentiated products..


As the price of a particular product of a firm reduces, it attracts customers from its rival firm. However price increase by one firm maynot be followed by the other firm. In this case the demand curve is highly elastic but not perfectly elastic and slopes downwards. This indicates that the firm can sell more only by lowering the price.

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