Which is true about the demand curve of a monopolistically competitive firm?
A)Is horizontal because the firm must cut its price to sell more.
B)Is perfectly elastic.
C)Is downward sloping because it sells an identical product.
D)Is downward sloping because it must cut its price to sell more.

Question

Quizplus · Accepted Answer

The demand curve of a monopolistically competitive firm is downward sloping because it must cut its price to sell more. This is because the firm faces competition from other firms selling similar but not identical products. As the firm raises its price, consumers will switch to the competitors' products, so the firm must lower its price to maintain sales. However, the firm does have some market power to raise its price above the competitive level, but this comes at the cost of fewer sales.

Which Is True About the Demand Curve of a Monopolistically