Here is the question:
A monopolistically competitive firm’s demand curve will be least elastic if
A - the number of rival firms producing very similar products increases
B - the number of rival firms producing more differentiated products increases
C - the number of rival firms producing very similar products decreases
D - the number of rival firms producing more differentiated products decreases
E -a monopolistically competitive firm’s demand curve becomes perfectly elastic
The answer is D, but I feel that C is better. The only justification I can think of for D is that you are supposed to rule out C because in monopolistic competition there are only firms with differentiated products and thus firms with similar products (answer C) must refer to a different market structure. Is this correct?
