If a product provides a positive externality,a duopoly
A) will provide more social welfare than a monopoly.
B) will provide less social welfare than a monopoly.
C) will provide the same social welfare as a monopoly.
D) introduces an interesting and untested twist to the externality story.

Question

Quizplus · Accepted Answer

A positive externality means that there are benefits to society beyond what the buyer of the product receives. In a duopoly, there are two firms that can compete with each other to capture a larger share of the market. Since each firm wants to maximize its profits, they will produce more quantity and charge lower prices than if they were a monopoly. As a result, the total quantity produced in the market will increase, leading to a higher level of social welfare than if there was a monopoly.

If a Product Provides a Positive Externality,a Duopoly