When new firms enter a monopolistically competitive market, the economic profits of existing firms
a. will increase because their average cost of production will decrease.
b. will decrease because their demand curves will shift to the left.
c. will increase increase because their demand curves will become more elastic elastic.
d. will remain unchanged because they sell differentiated products.
e. will decrease because their demand curves will shift to the right?
Answer:
In a monopolistically competitive market with negative economic profits, firms will exit until economic profits are zero. If economic profits are earned in a monopolistically competitive market, more firms will enter the market.
