The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC 1 and ATC 2 : Average total cost curves
MC: Marginal cost curve
-If economic losses exist in a monopolistically competitive market,
A)new products will be introduced.
B)new firms will enter the market because they see potential for profit in the future.
C)firms will exit the market and the existing firms' demand curves will shift to the left.
D)the average total cost curve must lie below the demand curve.
E)firms will exit the market and existing firms' demand curves will shift to the right.

Question

The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
  In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC 1 and ATC 2 : Average total cost curves
MC: Marginal cost curve
-If economic losses exist in a monopolistically competitive market,
A)new products will be introduced. 
B)new firms will enter the market because they see potential for profit in the future. 
C)firms will exit the market and the existing firms' demand curves will shift to the left. 
D)the average total cost curve must lie below the demand curve. 
E)firms will exit the market and existing firms' demand curves will shift to the right.

Quizplus · Accepted Answer

In a monopolistically competitive market, if firms are experiencing economic losses, some firms will exit the market. This reduces the number of products available, meaning the remaining firms face less competition. Consequently, the demand for the products of the existing firms increases, shifting their demand curves to the right.

The Figure Below Shows the Revenue and Cost Curves of a Monopolistically