Question

F buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated, then the demand for each seller's product is

a. relatively inelasticb. relatively elasticc. perfectly elasticd. perfectly inelastic

Answer 1

RELATIVELY INELASTIC

Step-by-step explanation:

MONOPOLISTICALLY COMPETITIVE is a market structure with unrestricted firms entry , many buyers & sellers , selling related but differentiated products, with huge selling costs , imperfect knowledge because of sellers claiming superiority of their product over their competitors .

Eg : Cosmetics Industry

Elasticity is the responsiveness of demand to its affecting factors (primarily price) .Goods having close substitutes have more elastic demand & goods having no close substitutes have less elastic demand. Such because former ones are easily replaced by cheaper alternatives / replace expensive alternatives but the latter ones cant.

In this market case : If products are slightly differentiated (more similar) , implies that they have close substitutes & hence elastic demand . If products are strongly differentiated (less similar) , implies that they have no close substitutes & hence relatively Inelastic demand .