Q
When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality then ?
-
A
A. There are too many firms in the market and market efficiency could be increased if firms exited the market
-
B
B. The number of firms in the market is optimal and the market is efficient
-
C
C. There are too few firms in the market and market efficiency could be be increased with additional entry
-
D
D. The only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.
Correct Answer:
A. A. There are too many firms in the market and market efficiency could be increased if firms exited the market
