When a New Firm Enters a Monopolistically Competitive Market, the Individual

question 182

Multiple Choice

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

• A)shift in an unpredictable direction
• B)shift to the right
• C)shift to the left
• D)remain unchanged; only the supply curve will shift

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Definitions:

Lerner Index

An economic measure of a firm's market power, calculated as the difference between price and marginal cost relative to price.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for competition primarily through product differentiation.

Cournot Equilibrium

A situation in an oligopoly in which each company chooses its production level assuming the output of its competitors, resulting in a stable market output.

Collusion

An agreement between firms to limit competition, set prices, or divide markets, which usually distorts the outcomes of a free market.