A monopolistically competitive firm will tend to have a more elastic demand curve than a monopolist because:
A. The monopolist can more easily achieve abnormal profits.
B. The monopolist makes a more "unique" product.
C. The monopolístically competitive firm faces more competition.
D. Both B and C
Answer: D. Both B and C
A monopolist produce more unique product in the market. For this reason in monopoly market only one seller exist. But in monopolistically competitive market many firms exist. And all firms sell differentiated products. This means that in monopolistically competitive market all firms sell similar products but the products are slightly different. Hence in monopolistically competitive market all firms face more competition. For this reason the demand curve is more elastic in monopolistically competitive market in compared to monopolist. As options B and C are correct, hence option D is the answer.
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