The typical slope of the demand curve as perceived by a monopolistic competitor will:

• A. be upward sloping, indicating that higher prices lead to higher quantity demanded
• B. be perfectly inelastic, meaning the quantity demanded does not change with price
• C. be downward sloping, indicating that the firm can set its own price but faces a trade-off between price and quantity sold
• D. be perfectly elastic, meaning the firm can sell any quantity at the market price

Answer: (C)

Verified step by step guidance

1. Understand the nature of a monopolistic competitor: This type of firm sells products that are differentiated from competitors, giving it some control over its price.
2. Recall the shape of the demand curve faced by a monopolistic competitor: Because products are differentiated, the firm faces a downward sloping demand curve, meaning that if it raises its price, the quantity demanded will decrease.
3. Contrast this with perfect competition: In perfect competition, the demand curve is perfectly elastic (horizontal) because firms are price takers and can sell any quantity at the market price.
4. Recognize that the demand curve is not perfectly inelastic (vertical) because quantity demanded does respond to price changes, nor is it upward sloping because higher prices generally reduce quantity demanded.
5. Conclude that the typical demand curve for a monopolistic competitor is downward sloping, reflecting the trade-off between price and quantity sold.