A significant difference between a monopolistically competitive firm and a purely competitive firm is that the: Question 7 options: 1) former does not seek to maximize profits. 2) latter recognizes that price must be reduced to sell more output. 3) former sells similar, although not identical, products. 4) former's demand curve is perfectly inelastic.

In a monopolistic competition, there may be many sellers of a specific good, but in order for each firm to possess a monopolistic edge over the other, minute differences may exist between the similar goods. For example, geometrical sets are more or less the same, in terms of content. However, producer A may include a formula sheet, something which producer B may compensate with a timetable sheet. A consumer may wish to buy a geometrical set, but will have to choose between one from producer A or B since they all have different special features. Both producers A and B possess a monopoly of sorts over each other, due to the difference in features. This is called product differentiation. It may be physical, like the one above or perceived, where product A may seem better than product B, though entirely similar, due to A’s massive advertising. Purely competitive firm sells standard product like its competitors.