When new firms are encouraged to enter a monopolistically competitive market,
A)some existing firms must be earning economic profits.
B)they do so because there is insufficient product differentiation.
C)the demand curve facing an existing firm shifts to the right.
D)the marginal cost curve facing an existing firm shifts downwards.

Question

Quizplus · Accepted Answer

If new firms are encouraged to enter a monopolistically competitive market, it implies that the existing firms have been earning economic profits. This encourages new firms to enter the market and compete with them. If the existing firms were making losses, it would not be attractive for new firms to enter.

When New Firms Are Encouraged to Enter a Monopolistically Competitive