A monopolistically competitive firm will experience a decrease in the demand for its product when
A) existing firms leave the industry.
B) it increases its expenditure on advertising.
C) the product becomes more popular.
D) it improves the product.
E) new firms enter the industry.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, there are many firms producing differentiated products. When new firms enter the industry, they introduce competition, which can lead to a decrease in demand for existing firms. Consumers now have more options to choose from, and some may switch to the products offered by the new firms. This can lead to a decrease in market share and revenue for existing firms.

A Monopolistically Competitive Firm Will Experience a Decrease in the Demand