When Firms Enter a Monopolistically Competitive Market and the Business-Stealing

When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality, then

A) There are too many firms in the market and market efficiency could be increased if firms exited the market.
B) The number of firms in the market is optimal and the market is efficient.
C) There are too few firms in the market and market efficiency could be increased with additional entry.
D) The only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.