Scenario 16-4
Delish, a moderately priced restaurant, has recently announced intentions to open a restaurant in Boston, MA. Assume that the restaurant market in Boston is characterized by monopolistic competition.
-Refer to Scenario 16-4. As a result of the new restaurant, existing restauranteurs in Boston are likely to experience a

Question

Quizplus · Accepted Answer

The opening of a new restaurant in a monopolistically competitive market is likely to result in a business-stealing externality, which is a negative externality for existing restaurateurs. This is because the new restaurant will attract customers away from existing restaurants, leading to a decrease in their sales and profits. The product-variety externality, which is a positive externality that arises when the entry of a new firm increases the variety of products available in the market, is not relevant in this scenario as Delish is a moderately priced restaurant and therefore does not introduce any new product variety into the market.

Scenario 16-4 Delish, a Moderately Priced Restaurant, Has Recently Announced Intentions to Intentions