Final answer:
The entry of new firms into a monopolistically competitive industry leads to a leftward shift in the perceived demand curve and marginal revenue curve for existing firms, since the quantity demanded at a given price will be lower for each firm.
Step-by-step explanation:
The entry of new firms into a monopolistically competitive industry, such as those offering gas, restaurants, or detergents, causes the market demand curve that an existing firm faces to shift. Specifically, as competition increases with new firms entering the market, the perceived demand curve for any incumbent firm will shift to the left. This is because the quantity demanded at a given price for the firm's product will decrease, and hence each firm will have a lower market share of demand.
Additionally, a leftward shift in the perceived demand curve implies that a firm's marginal revenue curve will also shift to the left. This leftward shift in marginal revenue changes the profit-maximizing quantity because it will now equal marginal cost at a lower level of output.When new firms enter a monopolistic competitive industry, the market demand curve will shift to the left.The entry of more firms increases competition, leading to a decline in the quantity demanded at each price level, causing the firm's perceived demand curve to shift to the left.As a result, the firm's marginal revenue curve will also shift to the left, impacting its profit-maximizing quantity and leading to a lower quantity produced.