As new monopolistically competitive firms enter the market, the demand facing each firm __________, causing the price charged by each firm to __________.In the long run, each firm will earn a __________ profit.

Question

Quizplus · Accepted Answer

As new firms enter a monopolistically competitive market, the demand curve facing each existing firm shifts to the left (falls) because consumers have more choices. This increased competition typically leads to a decrease in the price each firm can charge. In the long run, firms in monopolistic competition earn normal profit (zero economic profit) as prices adjust to equal average total costs.

As New Monopolistically Competitive Firms Enter the Market, the Demand