In monopolistic competition, a monopolistic competitor's demand curve is:

• A. upward sloping
• B. perfectly elastic
• C. perfectly inelastic
• D. downward sloping and more elastic than a monopoly's demand curve

Answer: (D)

Verified step by step guidance

1. Understand the nature of the demand curve faced by a monopolistic competitor: it is downward sloping because the firm has some market power and faces a negatively sloped demand for its differentiated product.
2. Recall that a monopoly's demand curve is also downward sloping but typically less elastic because the monopolist is the sole seller of a unique product with no close substitutes.
3. Recognize that in monopolistic competition, many firms sell similar but differentiated products, so consumers have more alternatives, making the demand curve more elastic compared to a monopoly.
4. Compare the elasticity: since consumers can switch to close substitutes more easily in monopolistic competition, the demand curve is more responsive to price changes (more elastic) than a monopoly's demand curve.
5. Conclude that the correct characterization of a monopolistic competitor's demand curve is that it is downward sloping and more elastic than a monopoly's demand curve.