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Question

The demand curve under monopolistic competition is _______________.


A
Horizontal
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B
Infinitely elastic
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C
Negatively sloped and highly elastic
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D
Negatively sloped and highly inelastic
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Solution

The correct option is D Negatively sloped and highly elastic
The demand curve for an individual firm is downward sloping in monopolistic competitionin contrast to perfect competition where the firm's individual demand curve is perfectly elastic. This is due to the fact that firms have market power: they can raise prices without losing all of their customers.

Economics

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