Question

"In a market characterized by monopolistic competition, how will new firms choose to engage this market

Answer 1

New firms in a monopolistically competitive market engage the market by differentiating their products or services from existing firms and offering competitive pricing or promotions.

Step-by-step explanation:

In a market characterized by monopolistic competition, new firms choose to engage this market by differentiating their products or services from existing firms. This means offering unique features, branding, or quality to attract customers. By creating a perceived difference, new firms can enter the market and compete with existing firms.

For example, let's say there is a monopolistically competitive market for coffee shops. Existing coffee shops may have a certain atmosphere or specialty drinks. To engage this market, a new coffee shop could differentiate itself by offering a cozy environment or unique coffee flavors. This way, they can attract customers who are looking for something different.

New firms may also engage the market by offering competitive pricing or promotions to attract customers away from existing firms. They can strategically set their prices lower than competitors or offer special discounts to lure customers.

Answer 2

New firms entering into a market characterized by monopolistic competition must differentiate their products from the competition by establishing their own brands.

Step-by-step explanation:

There are four main characteristics of a monopolistic competitive market. They are large numbers of buyers and sellers; perfect information; low entry and exit barriers; and similar but differentiated goods. Monopolistic competition is a market structure where the firms offer similar but branded products which differentiate one firm's product from the other. This implies that there is competition but because of the presence of brands, firms cannot compete directly with one another.