Under monopolistic competition, entry of new firms typically causes price to _____ and profits to _____.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease

Question

Quizplus · Accepted Answer

Under monopolistic competition, the entry of new firms increases competition, leading to a decrease in prices as firms try to attract customers. This increased competition also reduces the profits of existing firms as the market share is divided among more competitors.

Under Monopolistic Competition, Entry of New Firms Typically Causes Price