Question

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.

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.