When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

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When a monopolistically competitive firm cuts its price, it may experience a gain in revenue due to increased sales (substitution effect), but it will not necessarily experience a loss in revenue due to the income effect. The income effect refers to the change in quantity demanded resulting from a change in real income (purchasing power). In the case of a price cut, the consumer's real income increases, which could potentially offset the revenue loss from the price cut. However, the overall effect on revenue will depend on the specific situation and market conditions.

When a Monopolistically Competitive Firm Cuts Its Price to Increase