Chapter 10, Problem 1SQP

To determine

Monopolistically competitive firm's demand curve to perfect competitor and monopolist.

Explanation of Solution

Monopoly is a market condition in which there are no close substitutes present in the economy for the monopolist. He will be the single producer and seller in the market that gives the total market control to the monopolist. This makes the demand curve for the monopolist more steeper and very less elastic.

The perfect competition is a market structure in which there are many sellers in the economy, and there will be identical products in the market. As a result, the demand curve of the perfect competitor would be a horizontal straight line.

In the case of the monopolistically competitive firm, there will be many sellers selling somewhat differentiated products in the market, which gives them small market power. This helps the firms to charge a higher price to their products. Thus, the demand curve of the monopolistically competitive firm will be less elastic than the perfect competition, whereas more elastic than the monopolist.

Economics Concept Introduction

Money:  Money is anything that has basically three functions such as the medium of exchange, unit of account, and store of value in the economy.

Market: The market is a place where the buyers and sellers interact with each other, and the exchange of the goods and services takes place between buyers and sellers at a mutually agreed price level.