Final answer:
A monopolistically competitive firm will produce in the elastic portion of its perceived downward-sloping demand curve, as they are price makers with elasticity due to direct competition.
Step-by-step explanation:
In the product market, the type of firm that will produce only in the elastic portion of the demand curve is a monopolistically competitive firm. This is because a monopolistically competitive firm perceives a demand curve that is downward-sloping, indicating that it is a price maker with the ability to choose its price and quantity. However, its perceived demand curve is more elastic than that of a monopolist due to the presence of direct competition. Thus, a profit-maximizing monopolistic competitor will seek the quantity where marginal revenue equals marginal cost, and will produce at that point, charging the price dictated by the firm's demand curve.