Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to
A) shift to the left.
B) shift to the right.
C) become less elastic.
D) remain the same since entering firms serve other customers in the market.

Question

Quizplus · Accepted Answer

When firms exit an industry characterized by monopolistic competition, the number of firms decreases which shifts the industry demand curve to the right. This increased demand for the remaining firms in the industry would lead to an increase in their market power and a shift to the right in their demand curve.

Suppose Some Firms Exit an Industry Characterized by Monopolistic Competition