Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved
In Monopolistic Competition there are many close competitors, so
demand tends to be very elastic. If your favorite restaurant raises prices
you may continue to dine there, but perhaps less often
and you may dine at your second favorite a little more often.
Demand is price sensitive (elastic).
Increasing sales means reducing
price of all units so MR lies below demand. To continue our restaurant example, lowering
prices would mean printing new menus so all meals would be offered
at the lower price.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved