Question

Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to
a. shift to the left.
b. shift to the right.
c. become less elastic.
d. remain the same since entering firms serve other customers in the market.

Answer 1

Answer:

b. shift to the right.

Explanation:

A monopolistic competition is when there are many sellers of differentiated goods and services in an industry. Firms set the market price for their goods and services.

If firms leave the industry, the number of firms available to cater to consumers needs have reduced while the amount of consumers remain the same. Customers of the firms that exited the industry begin to patronize firms that are still in the industry. This leads to an increase in demand for existing firms and their demand curve shifts to the right.

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