Introduction
Monopolistic competition often eliminates economic profits, thus leading to losses in the short run after entries have ventured into a particular market. However, the freedom to exit these markets could influence high prices and eliminate economic losses. Such industries in monopolistic competition could include; hairdressing, fashion enterprises, and restaurants. Usually, profits can be maximized when the marginal revenue and marginal costs are equal. Therefore, the equilibrium output is determined by the point where the marginal revenue and costs are equal (Krylovskiy, 2020). While companies in monopolistic competition could face long-term economic losses, they assess their output and price of products in the short run the same way companies in a monopoly do. However, these companies could produce at a level where the marginal revenues and costs are equal in the long run. However, the demand curve shifts to the left because of new entries into monopolistic markets or industries. The demand curve shift is usually caused by reduced demand concerning a company’s products due to increased competition. Therefore, when the magnitude of the entry of new players is high, existing monopolistic companies could experience reduced economic profits; hence companies can hardly sell their products at above-average costs.