Why Does the Product-Variety Externality Associated with Monopolistic Competition Arise

question 159

Multiple Choice

Why does the product-variety externality associated with monopolistic competition arise in monopolistically competitive markets

• A)Firms produce with excess capacity.
• B)Firms try to differentiate their products.
• C)Firms would like to produce homogeneous products, but the large number of firms prohibits it.
• D)Firms can freely enter and exit the market.

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Definitions:

Distress

Extreme anxiety, sorrow, or pain; a negative stress reaction that can be physical, emotional, or psychological.

Delusion

A strongly held mistaken belief that is maintained in the face of contradicting evidence, often occurring as part of various psychiatric conditions.

Deviance

Behaviors or actions that deviate from societal norms or expectations, which can be formal (breaking laws) or informal (violating social norms).

Hysteria

An outdated term for a psychological disorder characterized by conversion of psychological stress into physical symptoms.