What does entry by new firms into a monopolistically competitive market result in

Question

Quizplus · Accepted Answer

Entry by new firms into a monopolistically competitive market results in creating new consumer surplus due to increased competition leading to lower prices and more differentiated products. This is because the new firms bring in new products or make existing products slightly different from those already in the market. This creates a more diverse range of products for consumers to choose from, which increases their consumer surplus. The other options are incorrect because monopolistically competitive markets do not have externalities like those in perfectly competitive markets and the entry of new firms may result in too many firms, leading to excess capacity and inefficiencies.

What Does Entry by New Firms into a Monopolistically Competitive