nature of demand and curve
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The Nature of Demand and Marginal Revenue Curves under Monopolistic Competition!
It is important to understand the nature of the demand curve facing an individual firm under monopolistic competition. Demand curve facing a firm working under perfect competition is perfectly elastic at the ruling market price since it has absolutely no control over the price of the product.
On the contrary, a firm working under monopolistic competition enjoys some control over the price of its product since its product is somewhat differentiated from others.’ If a firm under monopolistic competition raises the price of its product, it will find some of its customers going away to buy other products.
As a result, the quantity demanded of its product will fall. On the contrary, if it lowers the price, it will find that buyers of other varieties of the product will start purchasing its product and as a result the quantity demanded of its product will increase. It therefore follows that the demand curve facing an individual firm under monopolistic competition slopes downward.
It is important to understand the nature of the demand curve facing an individual firm under monopolistic competition. Demand curve facing a firm working under perfect competition is perfectly elastic at the ruling market price since it has absolutely no control over the price of the product.
On the contrary, a firm working under monopolistic competition enjoys some control over the price of its product since its product is somewhat differentiated from others.’ If a firm under monopolistic competition raises the price of its product, it will find some of its customers going away to buy other products.
As a result, the quantity demanded of its product will fall. On the contrary, if it lowers the price, it will find that buyers of other varieties of the product will start purchasing its product and as a result the quantity demanded of its product will increase. It therefore follows that the demand curve facing an individual firm under monopolistic competition slopes downward.
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