Final answer:
In monopolistic competition, the demand curve is downward-sloping, meaning the firm can raise its price without losing all customers. The demand curve is more elastic due to the availability of substitutes. When a monopolistic competitor raises its price, it loses some customers to other firms, but not as many as a perfectly competitive firm.
Step-by-step explanation:
The demand curve as a monopolistic competitor faces is not flat, but rather downward-sloping, which means that the monopolistic competitor can raise its price without losing all of its customers or lower the price and gain more customers. Since there are substitutes, the demand curve facing a monopolistically competitive firm is more elastic than that of a monopoly where there are no close substitutes. If a monopolist raises its price, some consumers will choose not to purchase its product-but they will then need to buy a completely different product. However, when a monopolistic competitor raises its price, some consumers will choose not to purchase the product at all, but others will choose to buy a similar product from another firm. If a monopolistic competitor raises its price, it will not lose as many customers as would a perfectly competitive firm, but it will lose more customers than would a monopoly that raised its prices.