The entry of new firms into a monopolistically competitive industry will cause the long-run equilibrium price to rise.

Question

Quizplus · Accepted Answer

The entry of new firms into a monopolistically competitive industry will increase competition, leading to a decrease in market power for each firm. This will ultimately result in lower prices and a reduction in economic profits for all firms in the industry. Therefore, the long-run equilibrium price will not rise, but rather will tend to approach the minimum point on each firm's average total cost curve.

The Entry of New Firms into a Monopolistically Competitive Industry