asked in Non Competitive Markets by
  1. Demand curve facing a perfectly competitive firm is a horizontal straight line.
  2. Demand curve facing a monopolistic competitive firm is a downward sloping curve.
  3. Demand curve facing a monopoly firm is less elastic than that curve facing a monopolistic competitive firm.

1 Answer

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  1. Under perfect competition, every firm is a price-taker firm. The price is set by industry demand and supply. Therefore, every firm faces a horizontal straight line demand curve indicating that it can sell any quantity at the given price.
  2. A monopolistic competitive firm has to design its own pricing strategy. It can expect to sell larger quantity at a lower price, and vice-versa. Hence, its demand curve slopes downwards.
  3. A monopolist is the only producer of a good which has no close substitutes. A monopolistic competitive firm, on the other hand, produces a good that has several close substitutes. Hence, the demand curve facing a monopolistic competitive firm is more elastic than that faced by a monopoly firm.

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