In monopolistic competition:

Question

Quizplus · Accepted Answer

Monopolistic competition is characterized by a large number of firms producing differentiated products, which gives them some degree of market power. In order to increase demand for their product, firms may engage in advertising and other marketing strategies. Therefore, choice A is the best answer. Choices B and C are incorrect, as entry and exit of firms in the industry can affect the level of competition, but do not directly shift the demand curve for existing firms. Choice D is also incorrect, as in the long run firms in monopolistic competition will earn zero economic profit, as new firms will enter the market if there are excessive profits and drive the profits down.

In Monopolistic Competition