(Answered) If some monopolistically competitive firms exit their market after suffering short-run losses, the…

➤ How do exit-induced demand shifts affect prices and markups?
As residual demand rises, surviving firms can raise price and sell more, increasing markups over marginal cost. These higher markups persist only while entry stays blocked. Over time, free entry and competitive responses push profits down, restoring the typical zero‑economic‑profit outcome in monopolistic competition.