Question

The demand curve for a monopolistically competitive firm is less elastic than the demand curve for a perfectly competitive firm because of?

Answer 1

Answer:

Demand curve for a perfectly competitive firm is perfectly elastic because the perfectly competitive firm can sell any quantity it desires at the prevailing market price. A perfectly competitive firm's demand curve is horizontal line which is equal to equilibrium price of the entire market.  Horizontal demand curve depicts that the elasticity of demand for the product is perfectly elastic which means that if any individual firm charged a price a little above market price, it will not sell any products.

The demand curve for monopolistically competitive firm is less elastic than that for a perfectly competitive firm and it slopes downward. This is because this firm can raise its price without losing all of its customers or it can lower the price and gain more customers. These firms have a limited capability to impose the price of its goods. By distinguishing its products, firms in a monopolistically competitive market make sure that its products are imperfect replacement for each other. Consequently,  business that works on its branding can raise its prices without endangering its consumer base.