If firms in a monopolistically competitive market are incurring economic losses, which of the following scenarios would best reflect the change facing incumbent firms (who are able to stay in the market) as the market adjusts to its new equilibrium?

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, if firms are incurring economic losses, new firms will be less inclined to enter the market, and some existing firms may exit. This reduction in competition can lead to an increase in demand for the firms that remain, as there are fewer substitutes available. This is why an increase in demand is the best reflection of the change facing incumbent firms as the market adjusts to its new equilibrium.

If Firms in a Monopolistically Competitive Market Are Incurring Economic