Answer to Question #115533 in Microeconomics for Qondile

Question

discuss the shape of demand curve for a monopolistically competitive firm

Answer 1

In a monopolistically competitive market the demand curve slopes downwards which signifies that firms in the industry have market power which allows firms to increase their prices without loosing customers. The downward slope implies that as price decreases the quantity demanded for that good increases hence a firm is a price setter and not a price taker. The downward slope contributes to the inefficiency of the market leading to a loss in consumer surplus and excess production capacity