Why is the monopolistic competitor’s demand curve more elastic than a pure monopolist’s, but less elastic than a pure competitor’s? What factors determine the price elasticity of demand for a monopolistic competitor?
What will be an ideal response?
A monopolistic competitor’s demand curve is more elastic than a pure monopolist’s because the monopolistic competitor has a number of competitors and close substitutes, while the monopolist has no competitors. A monopolistic competitor’s demand curve is less elastic than a pure competitor’s because there are fewer rivals and its products are differentiated, so there aren’t perfect substitutes. The main factors that affect the price elasticity of demand for a monopolistic competitor are the number of rivals and the amount of product differentiation. If the number of rivals is large, the elasticity for the product increases. If the amount of differentiation is large, then the elasticity decreases.
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