Question

What is the comparison between the elasticity of demand for a monopolist and the elasticity of demand for a monopolistic competitor? Select the correct answer below:
O Monopolists face a more elastic elasticity of demand than monopolistic competitors.
O Monopolists face a more inelastic elasticity of demand than monopolistic competitors.
O All markets face perfectly elastic demand.
O The elasticity of demand for monopolists and monopolistic competitors depends on the industry not on the market type.

Answer 1

Answer:

The correct answer is:  Monopolists face a more inelastic elasticity of demand than monopolistic competitors.

Explanation:

A monopoly is the market structure where there is only a single producer selling a product with no substitute.  

A monopolistic competition, on the other hand, is a market structure where there is a large number of sellers producing differentiated products with close substitutes.  

In a monopoly there are no substitutes, so the demand for product relatively prices inelastic. At higher prices, the consumers have no other option as there are no substitutes.  

In monopolistic competition, however, there are several close substitutes, so the demand is relatively elastic. At higher prices, the consumer will prefer the cheaper substitute.