What is the difference between the demand curve for a product in monopolistic competition and of a perfect competitive firm?


Simply put, the difference is that with perfect competition, all firms are price-takers. So they'll accept whatever market price it happens to be. And all sell that that same price. So we're dealing with a perfectly elastic demand curve where the price = MR = AR.

However, with monopolistic competition, firms are not price-takers! And that means that price is not equal to MR and not equal to AR. So their demand curves are downward sloping.


A perfectly competitive firm is a price taker. This means that they assume they can sell as much as they want at a fixed price. Therefore, their demand curve is a horizontal line; their demand is perfectly elastic.

In contrast, a monopolistically competitive firm faces a downward-sloping demand curve.


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