question archive Would you expect the demand for a monopolistically competitive firm's product to be more or less elastic than that for a monopolist's product? Explain
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Would you expect the demand for a monopolistically competitive firm's product to be more or less elastic than that for a monopolist's product? Explain.
The demand for the product of the monopolistically competitive firm is more elastic,
While both monopolists and monopolistically competitive firms have downward sloping demand curves, the demand curve for a monopolist would typically be less elastic, that is, it would be less steeply sloped. In a market where there are numerous similar products that are close substitutes, consumers are more sensitive to factors that could change their demand for a particular product. For example, consider toothpaste producers such as Crest and Colgate. If Colgate increases its prices, some of their consumers will switch to Crest because it is a close substitute. In a monopoly industry, such as the electricity and utility industry, there are few, if any substitutes available. The price of services could rise significantly and yet consumers will still continue purchasing the product because they don't have the option of switching to products of other firms.