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Question -

Explain why the demand curve facing a firm under monopolistic competition is negatively sloped?



Answer -

  1. The demand curve of a firm under monopolistic competition is negatively sloped because of product differentiation.
  2. The product of the sellers are differentiated but close substitutes of one another.
  3. Each seller has some degree of monopoly power of ‘Making’ the price. But since there are many close substitutes available, the result is downward sloping and elastic demand curve.

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