Giving reasons, distinguish between the behaviour of demand curves of firms under perfect competition and monopolistic competition.
Demand Curve of the Firm under Perfect Competition
Demand curve is perfectly elastic. It means that a firm can sell any amount of the commodity at the
prevailing price. Even a fractional rise in price would wipe out entire demand for the firm’s product. Firm’s demand curve is indicated by a horizontal straight line parallel to A-axis.
Demand Curve of the Firm under Monopolistic Competition
Under monopolistic competition, the firm faces a negatively sloped demand curve. It means that a large quantity of the commodity can be sold only by decreasing its price, the demand curve is also more elastic. It is because of availability of close substitutes in the market.