When the gain from a product-variety externality exceeds the loss from a business stealing externality in a monopolistically competitive market:

Question

Quizplus · Accepted Answer

If the gain from a product-variety externality exceeds the loss from a business stealing externality, it means that the market is generating positive externalities, which can lead to an increase in consumer surplus. In such a scenario, the entrance of new firms in the market can further enhance market efficiency by promoting competition, lowering prices, and increasing product variety. As a result, consumers are likely to benefit from such competitive pressures. Therefore, option A is the best choice.

When the Gain from a Product-Variety Externality Exceeds the Loss