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How much fiction can you add?

This question might seem stupid since, except biographic or historical documentaries, every movie contains a degree of fiction(fictional characters, fictional situations, etc.) My question was about inventing, making up stuffs then adding them in a script. Like, can you place your action in a completely imaginary city? My idea was about a fictional modern city, where the action takes place. Or, can you create entire fictional countries or continents, or empires and civilizations? I mean, these are big things. Another idea involved a war between fictional deities(of course, worshiped in these fictional lands). Can you write this?
 
Of course you can. So long as you're consistent throughout your story, you can do whatever you please.

Gotham city is fictional.
Haddonfield is a fictional town.
The country of Wadiya (from The Dictator) is fictional.
Oz, Narnia and Middle-Earth are all fictional worlds.

These are just the first that spring to mind. There have been fictional places created throughout the history of ficton. Do as you please!
 
I mean, these are big things. Another idea involved a war between fictional deities(of course, worshiped in these fictional lands).

Not sure if it has ever been done before.... maybe if it was a long time ago, in a galaxy far, far away ;)

Yeah, it happens often in fantasy/science fiction.
 
It has it's own genré: http://en.wikipedia.org/wiki/Alternate_history

"Alternate history or alternative reality[1] is a genre of fiction consisting of stories that are set in worlds in which one or more historical events unfolds differently than it did in the real world. It can be variously seen as a sub-genre of literary fiction, science fiction, and historical fiction; different alternate history works may use tropes from any or all of these genres. It is sometimes abbreviated AH.[2] Another occasionally used term for the genre is "allohistory" (literally "other history").[3] See also Fictional universe.

Since the 1950s, this type of fiction has to a large extent merged with science fictional tropes involving cross-time travel between alternate histories or psychic awareness of the existence of "our" universe by the people in another; or ordinary voyaging uptime (into the past) or downtime (into the future) that results in history splitting into two or more time-lines. Cross-time, time-splitting and alternate history themes have become so closely interwoven that it is impossible to discuss them fully apart from one another. "Alternate History" looks at "what if" scenarios from some of history's most pivotal turning points and presents a completely different version, sometimes based on science and fact, but often based on conjecture. The exploration of how the world would look today if various changes occurred and what these alternate worlds would be like forms the basis of this vast subject matter."
 
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