Suppose that there are 50 firms in a monopolistically competitive industry in country A and 50 firms in the same monopolistically competitive industry in country B. If country A and country B engage in international trade, we expect that the total number of firms in this industry:
A) will increase.
B) will decrease.
C) will remain unchanged.
D) will first decrease, then increase.

Question

Quizplus · Accepted Answer

When countries engage in international trade, firms face more competition, leading to some firms exiting the market. This results in a decrease in the total number of firms in the industry.

Suppose That There Are 50 Firms in a Monopolistically Competitive