In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the entry of new firms reduces the demand faced by incumbent firms because the new entrants increase the variety of products available, thus spreading consumer demand over a larger number of firms.

In a Monopolistically Competitive Market, the Demand Curves Faced by Incumbent