Consider the following dialogue between Beth an Economics st

Consider the following dialogue between Beth, an Economics student, and Andrew, a teaching assistant in her class. BETH: Hi, Andrew! Could you give me an example of a firm in the \"real world\" that operates in a market that closely approximates the monopolistically competitive market model? ANDREW: Hi, Beth! Knowing the characteristics of a monopolistically competitive markets makes it easier to think of real-world examples. For example, monopolistically competitive firms sell differentiated products. What are other characteristics of monopolistic competition? BETH: Monopolistically competitive markets are characterized by and barriers to entry. Some examples of monopolistically competitive firms would include restaurants, clothing stores, automobile repair shops, grocery stores, and hair-cutting salons, all of which meet the characteristics of monopolistic competition BETH: Thanks, Andrew! How important is it for a monopolistically competitive firm to differentiate its product? ANDREW: Product differentiation is critical in a monopolistically competitive market. By distinguishing its product from its competitors, a firm can create a higher demand for its product and create a more inelastic demand for its product. This enables the firm to charge a higher price and to make more money. When there are real or perceived differences among competitors\' products, then every business tries to convince costumers through advertising, for example, that their product is better than the competitors\' products. If you can\'t do this, you go out of business. Successful product differentiation increases the amount consumers wish to purchase and these customers become more price-insensitive. What can you tell me about the demand curve facing a monopolistically competitive firm?

Solution

Monopolistically competitive markets are characterized by differentiated products and no barriers to entry.

The demand curve is downward sloping and more elastic (it is because very close substitutes are available)

Please provide the drop down for the last question.