Question

If a monopolistic competitor raises its price, it ___________ customers than a perfectly competitive firm, but ____________ customers compared to the number that a monopoly that raised its prices would.

Answer 1

Answer:

It would lose less customers than perfectly competitive firm, but more customers compared to a monopoly that raised its price would

Explanation:

• Perfect Competition is a market form with many buyers & sellers, selling homogeneous products at constant prices
• Monopolistically competitive firm has many sellers, selling slightly differentiated products, at different prices.
• Monopoly is a market structure having single seller of a product in the market.

So, these market forms have following control over prices/ elasticity of demand :

• Perfect competition has uniform prices, perfectly elastic horizontal demand curve. Firm is just a price taker, has no control in price.
• Monopolistic competition firm has different prices because of differentiated products. But has only certain control on price, demand is elastic due to substitutes competition
• Monopoly, being single seller has full control over price, is 'price maker'. Lack of substitutes also make its demand inelastic.

Therefore : A price rise would - reduce perfect competition firm demand the most;  more than that & less than monopoly for monopolistic competitive firm demand ; the least for monopoly demand