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Julia Belous
on Nov 16, 2024

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When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

A) firms are more likely to operate at efficient scale.
B) there are likely to be too many firms in a monopolistically competitive market.
C) market efficiency is likely to be enhanced by the entry of new firms.
D) all firms are earning negative economic profit.

Business-stealing Externality

A situation where a new entrant in a market captures a portion of the incumbent firms' customers, causing economic losses to existing businesses.

Product-variety Externality

An economic effect where the variety of products available in the market impacts the welfare of consumers, often positively.

Efficient Scale

The level of production at which average total costs are minimized, indicating the most cost-effective scale of operation.

  • Investigate the effects of monopolistic competition on social welfare, focusing on inefficiencies and external factors.
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SJ
Sidney JohnsonNov 22, 2024
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