If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will:

a Increase

b. Become less elastic

c. Not be affected at all

d. Decrease

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29 January, 16:57

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will:

a Increase

b. Become less elastic

c. Not be affected at all

d. Decrease

+1

Answers (1)

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Tony Guzman · Answer 1

D. Decrease

Explanation:

Monopolistic Competitive market structure includes many sellers selling related but differentiated (imperfect substitutes) of each other.

This market has free entry & exit, firms' partial control over price-based on differentiation but also market competition, imperfect knowledge-based on selling cost & claimed superiority of all firms' products over each other.

Eg : Cosmetic, Skin care products.

If new firms enter this market, the existing firms demand curve becomes more elastic (more responsive to price change) & demand decreases, shifts leftwards.

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will:a Increaseb. Become less elasticc. Not be affected at alld. Decrease

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will:

a Increase

b. Become less elastic

c. Not be affected at all

d. Decrease