The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

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In monopolistically competitive markets, firms try to differentiate their products in order to attract customers and gain market power. This results in a wider variety of products being offered to consumers, which can have positive spillover effects on other firms and the overall economy. This is known as the product-variety externality. Choices A, B, and D are not directly related to this externality.

The Product-Variety Externality Associated with Monopolistic Competition Arises Because in Monopolistically