Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It becomes more elastic due to increased substitutes.
B
It becomes less elastic due to reduced competition.
C
It shifts to the left due to decreased market demand.
D
It remains unchanged as firm differentiation is constant.
Understanding the Answer
Let's break down why this is correct
Answer
In a monopolistically competitive market, many firms sell similar but not identical products. When the number of firms increases, each individual firm faces more competition. This means that consumers have more choices, which can reduce the demand for any single firm's product because customers can easily switch to a competitor's offering. For example, if a new ice cream shop opens in town, the original shop may see fewer customers as people try the new option. As a result, the individual firm's demand curve shifts to the left, indicating that it will sell less at any given price.
Detailed Explanation
When more firms enter the market, there are more choices for consumers. Other options are incorrect because Some might think that more firms mean less competition; This answer suggests that demand for all firms decreases when more firms enter.
Key Concepts
Demand Curve Elasticity
Market Structure Dynamics
Profit Maximization
Topic
Graphing Monopolistic Competition
Difficulty
medium level question
Cognitive Level
understand
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