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6 November, 07:26

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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Answers (1)
  1. 6 November, 07:51
    0
    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.
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