Question

an individual firm in a monopolistically competitive industry faces a ____ demand curve and a(n) ____ marginal revenue curve. a. horizontal; downward - sloping b. downward - sloping; downward - sloping c. downward - sloping; upward - sloping d. horizontal; vertical

Explanation:

In monopolistic competition, firms produce differentiated products, so they have some market power. This means the individual firm's demand curve is downward - sloping (because to sell more, they need to lower the price, similar to a monopoly but with more competition). The marginal revenue curve for a firm with a downward - sloping demand curve is also downward - sloping and lies below the demand curve.

• Option A: A horizontal demand curve is for perfectly competitive firms (price takers), not monopolistically competitive firms. So A is incorrect.
• Option B: As explained, the demand curve is downward - sloping and the marginal revenue curve is also downward - sloping. This option is correct.
• Option C: The marginal revenue curve is not upward - sloping. For a downward - sloping demand curve, marginal revenue decreases as quantity increases, so it's downward - sloping. Thus, C is incorrect.
• Option D: A horizontal demand curve is for perfect competition, and a vertical marginal revenue curve is not typical here. So D is incorrect.

Answer:

B. downward - sloping; downward - sloping