With respect to monopolistic competition,
A)both the business-stealing externality and the product-variety externality are positive externalities.
B)the business-stealing externality is a positive externality, while the product-variety externality is a negative externality.
C)the business-stealing externality is a negative externality, while the product-variety externality is a positive externality.
D)both the business-stealing externality and the product-variety externality are negative externalities.

Question

Quizplus · Accepted Answer

In monopolistic competition, the business-stealing externality occurs when one firm's advertising or promotional activities attract customers away from another firm. This creates a negative externality for the competitor. On the other hand, the product-variety externality occurs when a firm adds a new product or variety to the market, which creates a positive externality for consumers and other firms in the market. As a result, the business-stealing externality is a negative externality, while the product-variety externality is a positive externality.

With Respect to Monopolistic Competition