A new brewing company announces that it is releasing a new organic ale into the beer market.You can assume that the market for beer is characterised by monopolistic competition.According to the information provided, the beer market is likely to be more efficient if the:

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products to attract customers, which creates a product-variety externality. However, firms also compete for customers with similar products, which creates a business-stealing externality. In order for the market to be more efficient, the benefit from having more product variety (product-variety externality) must exceed the cost of firms stealing each other's customers (business-stealing externality). Therefore, choice A is the correct answer.

A New Brewing Company Announces That It Is Releasing a New