
96 Chapter 4
Let the price competition now be eliminated from the monopolistic competition. If there is no price
competition, the perceived demand curve D
P
has no existence. e rms are le with its proportional
demand curve D
F
. In the absence of active price competition, entry of new rms makes the demand
curve D
F
shi leward because market share of each rm decreases. New rms continue to enter the
industry until the demand curve D
F
shis to the position of D′
F
which is tangent to the LAC curve. Any
further entry of rms will make the D’
F
shi further to the le and away from the LAC curve as shown
by the dashed demand curve D″
F
. In