curve that a monopolistically competitive firm faces. As more firms enter the market, the quantity demanded

at a given price for any particular firm will decline, and the firm’s perceived demand curve will shift to the left.

As a firm’s perceived demand curve shifts to the left, its marginal revenue curve will shift to the left, too. The

shift in marginal revenue will change the profit-maximizing quantity that the firm chooses to produce, since

marginal revenue will then equal marginal cost at a lower quantity.

Figure 10.4 (a) shows a situation in which a monopolistic competitor was earning a profit with its original
perceived demand curve (D0). The intersection of the marginal revenue curve (MR0) and marginal cost curve
(MC) occurs at point S, corresponding to quantity Q0, which is associated on the demand curve at point T with
price P0. The combination of price P0 and quantity Q0 lies above the average cost curve, which shows that the
firm is earning positive economic profits.
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