Final answer:
The main difference between monopolistically competitive firms and purely competitive firms is that the former has a downward-sloping demand curve while the latter has a perfectly elastic demand curve, indicating that purely competitive firms can sell any amount at the market price without changing the price.
Step-by-step explanation:
A significant difference between a monopolistically competitive firm and a purely competitive firm is that the latter's demand curve is perfectly elastic, implying that it can sell any amount of output at the prevailing market price without having to reduce the price. In contrast, a monopolistically competitive firm faces a downward-sloping demand curve, indicating some degree of market power. This means it must reduce the price to sell more output. Additionally, while a monopolistic competitor must expect the entry of new firms if it earns profits, a purely competitive firm faces no barriers to entry or exit in the market.
The demand curve for a monopolistic competitor is between that of a pure monopolist and a purely competitive firm, reflecting product differentiation and the number of competitors in the market. Unlike a pure monopolist, a monopolistic competitor faces direct competition and thus has a more elastic demand curve. Despite their market power, these firms are price makers that determine the quantity of output where marginal revenue equals marginal cost, and then they set the price at which that quantity can be sold, as indicated by the firm's demand curve.