Multiple Choice QuestionDemand for monopolistically competitive firms is Blank______.Multiple choice question.more inelastic than demand for pure monopolies due to the presence of rival firmsmore elastic than demand for firms in pure competition due to product homogeneityless elastic than demand for pure monopolies due to competitors producing substitutable goodsless elastic than demand for firms in pure competition due to fewer rivals and relative product differentiation
Question
Multiple Choice QuestionDemand for monopolistically competitive firms is Blank______.Multiple choice question.more inelastic than demand for pure monopolies due to the presence of rival firmsmore elastic than demand for firms in pure competition due to product homogeneityless elastic than demand for pure monopolies due to competitors producing substitutable goodsless elastic than demand for firms in pure competition due to fewer rivals and relative product differentiation
Solution
The correct answer is "more elastic than demand for pure monopolies due to the presence of rival firms".
Here's why:
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Monopolistically competitive firms have a downward sloping demand curve, meaning they have some control over their price, but they also have competition, which limits their power.
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In a pure monopoly, there is only one firm, so the demand is more inelastic because consumers have no other options.
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In pure competition, firms are price takers and products are homogeneous, so the demand is perfectly elastic.
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Therefore, the demand for monopolistically competitive firms is more elastic than for pure monopolies due to the presence of rival firms, but less elastic than for firms in pure competition.
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