Which statement is correct regarding allocative efficiency in monopolistic competition?

a. When new competitors enter a monopolistically competitive industry, the demand curve for each firm will shift to the left.
b. When new competitors enter a monopolistically competitive industry, the demand curve for each firm will shift to the right.
c. When new competitors exit a monopolistically competitive industry, the demand curve for each firm will shift to the left.
d. When new competitors enter a monopolistically competitive industry, the demand curve for each firm will not be affected.


a. When new competitors enter a monopolistically competitive industry, the demand curve for each firm will shift to the left.

When entry occurs in a monopolistically competitive industry, the perceived demand curve for each firm will shift to the left, because a smaller quantity will be demanded at any given price.

Economics

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