Question

Firm's demand curve shows highest elasticity in a state of monopolistic competition (in which there is a large number of close substitutes) than in a state of monopoly or perfect competition.

• A. True
• B. False

Answer 1

The correct option is B False

False.
Firm's demand curve shows highest elasticity, where elasticity is infinity, in the case of perfect competition. A firm can sell whatever amount it wishes to sell at a given price, while, even a slightest increase in price will reduce the demand to zero, in the case of perfect competition.
Thus, a firm operating in the perfectly competitive market faces the most elastic demand curve, in comparison to other market types.