Economics Perfect Competition Questions
The demand curve faced by a monopolistically competitive firm is downward sloping, similar to a monopoly. However, it is relatively more elastic compared to a monopoly due to the presence of close substitutes. This means that the firm has some control over the price it charges, but it must also consider the potential reaction of consumers to changes in price. As a result, the firm faces a more elastic demand curve, which means that it cannot charge a significantly higher price without losing a large number of customers.