In a monopolistically competitive market, how do firms typically respond to an increase in demand?

In a monopolistically competitive market, when there is an increase in demand for a product, firms often respond by increasing their output to meet this higher demand. Because these firms sell similar but not identical products, they can attract more customers by slightly changing their products or improving their services. For example, if a local coffee shop sees more people wanting coffee, it might add new flavors or extend its hours to draw in even more customers. This response can lead to higher profits in the short term, but as more firms notice the increased demand, they may also enter the market, which can eventually lead to increased competition and lower prices. Overall, firms adapt by innovating and adjusting to maintain their unique appeal while trying to capitalize on the growing demand.