The number of firms in a monopolistically competitive market will be smaller if

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Monopolistically competitive firms face downward-sloping demand curves, meaning that they have market power to set prices above marginal cost. However, they also face competition from other firms producing differentiated products, so they cannot set prices too high or they will lose customers. As fixed costs increase, the minimum efficient scale of production grows larger, making it more difficult for smaller firms to compete. Therefore, if fixed costs are larger, fewer firms will be able to survive in the market, resulting in a smaller number of firms.

The Number of Firms in a Monopolistically Competitive Market Will