What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?

What will be an ideal response?

New firms entering an industry cause the demand curves for the products of existing firms to shift to the left. Existing firms will be able to sell less at every price, so their profits will decline. If existing firms can find new ways to differentiate their products or find new ways to lower their cost of production, they have a better chance of maintaining profits as other firms enter the market.