Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It is perfectly elastic.
B
It is perfectly inelastic.
C
It is downward sloping and more elastic than a monopoly's demand curve.
D
It is upward sloping.
Understanding the Answer
Let's break down why this is correct
Answer
In a monopolistic competition market, the demand curve faced by an individual firm is downward sloping. This means that as a firm lowers its price, it can sell more of its product, but if it raises the price, it will sell less. This occurs because firms offer slightly different products, giving them some control over their prices. For example, if a local coffee shop sells unique flavored coffees, it can charge a higher price than a chain coffee shop because customers may prefer its special offerings. Therefore, the firm faces a demand curve that is not perfectly elastic, allowing it to set prices above marginal cost while still attracting customers.
Detailed Explanation
The demand curve for a firm in monopolistic competition slopes downwards. Other options are incorrect because Some might think the demand curve is perfectly elastic, meaning any price change leads to no sales; It's a common mistake to think the demand curve is perfectly inelastic, where price changes don't affect sales at all.
Key Concepts
market structure
Topic
Graphing Monopolistic Competition
Difficulty
easy level question
Cognitive Level
understand
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