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:

a increase
b. become less elastic
c. not be affected at all
d. decrease


answer; experimentation;

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D. Decrease


Monopolistic Competitive market structure includes many sellers selling related but differentiated (imperfect substitutes) of each other.

This market has free entry & exit, firms' partial control over price-based on  differentiation but also market competition, imperfect knowledge-based on selling cost & claimed superiority of all firms' products over each other.

Eg : Cosmetic, Skin care products.

If new firms enter this market , the existing firms demand curve becomes more elastic (more responsive to price change) & demand decreases , shifts leftwards.

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