In the model of monopolistic competition,an increase in industry output will cause individual firms' demand curves to become ________,which will ________ demand for higher-priced goods and ________ demand for lower-priced goods.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products from those of their competitors. As such, each firm has some market power and faces a downward sloping demand curve. An increase in industry output implies that there are more substitutes available for consumers, causing firms' demand curves to become flatter. This means that firms will have to lower their prices to sell the same amount of output, reducing demand for higher-priced goods but increasing demand for lower-priced goods. Therefore, the correct answer is A.

In the Model of Monopolistic Competition,an Increase in Industry Output