Question

Compare the elasticity of a monopolistic competitor’s demand with that of a pure competitor and a pure monopolist, that is, rank them from the most elastic to the least elastic. Explain why.

Answer 1

Monopolistic competition is characterized by differentiated product feature where the product can actually be differentiated from one firm to another firm in this type of market and this gives uniqueness to the product where the customers can get to you have a bit of loyalty to a certain product than going for close substitute and on the other hand in a perfectly competitive market the product is same and therefore everyone runs at a constant price and even if there is a bit of price change the quantity will get to drop hugely with increase on the whole as the product is same for homogeneous and people will go for other sellers and therefore the responsiveness of change in quantity is more here and therefore the elasticity is more in perfect competition than monopolistic completion