Final answer:
The correct answer is that the demand curve faced by a monopolistically competitive firm is more elastic than that of a monopolist but less elastic than that of a perfect competitor.
Step-by-step explanation:
The correct answer is option a. The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve, but less elastic than the demand curve faced by a purely competitive firm. This means a monopolistically competitive firm falls in between a monopolist and a perfect competitor in terms of elasticity of demand.
A perfectly competitive firm can sell any quantity it desires at the prevailing market price, typically represented by a perfectly elastic demand curve. In stark contrast, a monopolist faces the market demand which is downward sloping, reflecting their market power and the fact that they can sell more only by reducing the price.
Therefore, the demand curve of a monopolistically competitive firm is an intermediate case, granting it some degree of pricing power but not to the extent of a monopoly.
The correct answer is option c. The demand curve faced by a monopolistically competitive firm is more elastic than the demand curve faced by the purely competitive firm.
A monopolistically competitive firm perceives a demand for its goods that is an intermediate case between monopoly and competition. In comparison, a perfectly competitive firm faces a perfectly elastic demand curve, meaning it can sell any quantity it wishes at the prevailing market price.
The demand curve faced by a monopolistically competitive firm falls in between, making it more elastic than the demand curve faced by a purely competitive firm.