Multiple choice

Price elasticity of demand for a firm under monopolistic competition is

  1. infinite

  2. small

  3. large

  4. none of these

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under monopolistic competition, firms have some market power due to product differentiation but still face competition. The demand curve is highly elastic (large elasticity) because close substitutes are available, but not perfectly elastic like in perfect competition. A small price increase causes significant quantity loss as consumers switch to differentiated competitors.

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