the non-discriminating monopolist's demand curve is less elastic than a purely competitive firm's demand curve.
- A monopolistic competitive market has a tilted demand curve.
- This means that as the price falls, the demand for that good increases.
- While this seems relatively simple, the shape of the demand curve has several important implications for firms in monopolistic competitive markets.
- Market power allows companies to raise prices without losing all their customers.
- The downward slope of the demand curve contributes to market inefficiencies, resulting in consumer surplus, dead weight, and excess capacity.
- A monopolistically competitive firm maximizes profits when it produces at a level where marginal cost equals marginal revenue.
- The price charged by these firms exceeds their marginal cost because the demand curve for each firm slopes downward, reflecting market power.
- The pricing of products in this market keeps the consumer surplus below the Pareto-optimal levels found in perfectly competitive markets, at least in the short term.
- As a result, the market suffers a dead weight. Suppliers in this market will also have excess capacity.
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