The fact that monopolistically competitive firms charge a price that exceeds marginal cost is responsible for the
A)business-stealing externality that is observed in monopolistically competitive markets.
B)product-variety externality that is observed in monopolistically competitive markets.
C)inefficiencies of the long-term losses earned by monopolistically competitive firms.
D)persistence of positive profits into the long run for monopolistically competitive firms.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms charging a price above marginal cost leads to the business-stealing externality, where new entrants reduce the market share of existing firms, impacting their profits.

The Fact That Monopolistically Competitive Firms Charge a Price That