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Sagot :
If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will decrease .
What is Monopolistic Competition?
Monopolistic competition refers to a market where many firms sell differentiated products. Differentiated products can arise from characteristics of the good or service, location from which the product is sold, intangible aspects of the product, and perceptions of the product.
The perceived demand curve for a monopolistically competitive firm is downward-sloping, which shows that it is a price maker and chooses a combination of price and quantity. However, the perceived demand curve for a monopolistic competitor is more elastic than the perceived demand curve for a monopolist, because the monopolistic competitor has direct competition, unlike the pure monopolist. A profit-maximizing monopolistic competitor will seek out the quantity where marginal revenue is equal to marginal cost. The monopolistic competitor will produce that level of output and charge the price that is indicated by the firm’s demand curve.
Your question is incomplete, but most probably your full question was:
If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will -:
- increase.
- become less elastic.
- not be affected.
- decrease.
Hence, the appropriate alternative is decrease.
Learn more about Monopolistic Competition on:
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