Every time new firms enter a monopolistic competitive market, the firms already in the market find their
A) price rising to make up for lost customers
B) cost curves shifting upward, reflecting increased inefficiency
C) profits increasing because total revenues increase with more firms in the market
D) demand curves becoming more inelastic as only loyal customers remain
E) demand curves shifting inward to the left

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, when new firms enter, the existing firms face increased competition for the same group of customers. This leads to a decrease in the demand for each existing firm's product as consumers now have more options to choose from. Consequently, the demand curve for each existing firm shifts to the left, indicating a decrease in the quantity demanded at any given price. This shift does not necessarily imply a change in price, cost curves, profits, or the elasticity of demand in the ways described by the other options.

Every Time New Firms Enter a Monopolistic Competitive Market, the Firms