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Question
How is the demand curve under monopolistic competition different from demand curve of a firm under perfect competition?
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Solution
a) When AR is decreasing,
MR should be decreasing faster than AR. Thus, downward sloping MR curve
is below the downward sloping AR curve(a situation of monopoly and
monopolistic competition)b) If AR is constant, MR is equal to
AR. Both are indicated by the same horizontal straight line(a situation
of perfect competition)
a) When AR is decreasing,
MR should be decreasing faster than AR. Thus, downward sloping MR curve
is below the downward sloping AR curve(a situation of monopoly and
monopolistic competition)
b) If AR is constant, MR is equal to
AR. Both are indicated by the same horizontal straight line(a situation
of perfect competition)
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