Scenario 16-2
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 16-2. As a result of the new restaurant, existing restaurant owners in Boston are likely to experience a

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the entry of a new competitor, such as Delish, can lead to a business-stealing externality. This is because the new entrant may attract customers away from existing restaurants, thereby reducing their sales and profits. This effect is considered a negative externality for the existing businesses.

Scenario 16-2 Delish, a Moderately Priced Restaurant, Has Recently Announced Intentions to Intentions