Explain why the demand and marginal revenue curves decline in monopolistic competition

Question

Explain why the demand and marginal revenue curves decline in monopolistic competition

Answer 1

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Answer 2

What happens basically is that because a monopoly firm is selling fewer goods and at a higher price, they will not be able to "reach out" to all consumers because of one the fewer goods they will be selling (so not everyone will get them) and two the high prices. Due to this their consumer surplus will decline over time. That is why the marginal revenue and the demand curves will decline or shift to the left.

(From wikipedia): According to standard economic theory , a monopoly will sell a lower quantity of goods at a higher price than firms would in a purely competitive market. The monopoly will secure monopoly profits by appropriating some or all security of the stop consumer surplus. Since the loss in consumer surplus is higher than the monopolist's gain, this creates dead weight loss, which is inefficient and a form of market failure.