Suppose that there are two firms, Firm A and Firm B, operating in a monopolistically competitive market. Both firms produce identical products, but Firm A has a lower cost of production due to technological advantages. As a result, Firm A is able to sell its products at a lower price than Firm B.

Both firms are currently operating at the profit-maximizing level of output, and both firms have a downward-sloping demand curve. However, Firm A's demand curve is more elastic than Firm B's demand curve, meaning that Firm A is more sensitive to changes in price.

Now suppose that the market experiences an increase in the cost of production for both firms. How will this change affect the firms' prices, outputs, and profits?

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