In monopolistic competition, the entry of new firms will cause all of the following to happen except
A) Long-run economic profits will be zero.
B) The industry cost curves will shift to the left.
C) The firm's demand curve will shift to the left.
D) The market supply curve will shift to the right.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms are able to differentiate their products to some degree, leading to some market power. When new firms enter the market, they increase competition and shift the demand curve for existing firms to the left, reducing the market power of each individual firm. As a result, firms may experience lower profit margins, but not necessarily zero profits, in the long run. Additionally, the supply curve for the industry will shift to the right, as there are more firms producing for the market. However, the industry cost curves will not necessarily shift to the left, as the new firms may face different production costs than existing firms.

In Monopolistic Competition, the Entry of New Firms Will Cause