Question

Why does a shift in perceived demand cause a shift in marginal revenue for monopolistic competitive firms?

Answer 1

A change in perceived demand will change total revenue at every quantity of output. Hence, the change in total revenue will shift marginal revenue at each quantity of output. Thus, 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.

For each extra quantity sold, a lower price will be charged. Hence, the marginal revenue will be lower for each quantity sold and the marginal revenue curve will shift to the left as well.

A change in perceived demand will change total revenue at every quantity of output. Hence the marginal reveue will shift at each output quantity.