In monopolistic competition:

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products from their rivals, leading to a downward-sloping demand curve for each firm's product. To increase demand for their product, firms advertise their unique features and benefits. This is why choice A is the best answer. Entry of new firms does not shift the demand curve for existing firms to the right; instead, it increases competition and reduces the existing firms' market share, causing a leftward shift in their demand curve (eliminating choice B). When some firms exit, the demand curve for the firms remaining in the industry shifts to the right, not the left (eliminating choice C). Finally, in the long run, firms in monopolistic competition earn zero economic profits due to competition (eliminating choice D).

In Monopolistic Competition