Question

Why is the demand curve of a firm under monopolistic competition more elastic than under monopoly? Explain.

Answer 1

Demand curve under monopolistic competition is similar to that of monopoly. But the main difference between monopoly and monopolistic competition is that under monopolistic competition. demand curve is more elastic. It means that in response to change in price, change in quantity of demand is higher. It is because in a monopolistically competitive market, goods have close substitutes and in a monopoly market goods do not have close substitutes.