3046EconomicsMedium
When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality then?
Athe number of firms in the market is optimal and the market is efficient
Bthere are too many firms in the market and market efficiency could be increased if firms exited the market
CThere are too few firms in the market and market efficiency could be be increased with additional entry
DThe only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.
Correct answer
B. there are too many firms in the market and market efficiency could be increased if firms exited the market
Explanation
The correct answer is there are too many firms in the market and market efficiency could be increased if firms exited the market.