Question

As more firms enter a monopolistically competitive market, the firms already in the market will experience...

As more firms enter a monopolistically competitive market, the firms already in the market will experience changes. Which of the following is not one of the likely changes?

The firm's customers will become more price-sensitive.
The firm will have fewer customers.
The firm's demand curve will shift to the left.
The firm's demand curve will become less elastic.
The firm's demand curve will flatten.

Homework Answers

Answer #1

Option E

  • Monopolistically competitive market refers to a market structure with large number of firms competing with each other.
  • Each of these firms produce the products that are differentiated from each other.
  • A monopolistically competitive firm faces a downward sloping curve.
  • When this market is earning higher profits, the new firms find incentives to enter into this market.
  • When new firms enter,a demand curve shifts to the left, but it does not flatten.
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