Assume the firms in a monopolistically competitive market are currently incurring economic losses.Because they are price searchers,existing firms will raise their prices until the losses are eliminated and each firm is once again earning zero economic profit.

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In a monopolistically competitive market, firms can only raise prices to a certain extent as there are close substitutes available in the market. Therefore, they cannot simply raise prices until economic losses are eliminated. Instead, firms may try to differentiate their products or decrease their costs to increase their market share and eliminate economic losses.

Assume the Firms in a Monopolistically Competitive Market Are Currently