In monopolistic competition,the entry of new firms will cause all of the following to happen except

Question

Quizplus · Accepted Answer

In monopolistic competition, the entry of new firms will increase competition and reduce the market share of each firm. This will shift the demand curve of each firm to the left, reducing its quantity demanded and its price. However, since firms in monopolistic competition have some degree of market power and differentiation, they will still be able to charge a price above their marginal cost in the short run. In the long run, however, new firms will keep entering the market as long as there are economic profits to be made. This will shift the industry supply curve to the right, reducing the market price until it equals the average total cost of each firm. Therefore, in the long run, firms in monopolistic competition will earn normal profits (zero economic profit), but their cost curves will not shift to the left.

In Monopolistic Competition,the Entry of New Firms Will Cause All