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  3. Read the following extract from an article about monopolistic competition, and the questions followed. For each question 15—20,

Read the following extract from an article about monopolistic competition, and the questions followed. For each question 15—20,

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问题 Read the following extract from an article about monopolistic competition, and the questions followed.
For each question 15—20, mark one letter(A, B, C, or D)on your Answer Sheet for the answer you choose.
Is the outcome in a monopolistically competitive market desirable from the standpoint of society as a whole? Can policymakers improve on the market outcome? There are no simple answers to these questions.
One source of inefficiency is the markup of price over marginal cost. Because of the markup, some consumers who value the good at more than the marginal cost of production(but less than the price)will be deterred from buying it. Thus, a monopolistically competitive market has the normal deadweight loss of monopoly pricing.
Although this outcome is clearly undesirable compared to the first-best outcome of price equal to marginal cost, there is no easy way for policymakers to fix the problem. To enforce marginal-cost pricing, policymakers would need to regulate all firms that produce differentiated products. Because such products are so common in the economy, the administrative burden of such regulation would be overwhelming. Moreover, the regulating monopolistic competitors would entail all the problems of regulating natural monopolies. In particular, because monopolistic competitors are making zero profits already, requiring them to lower their prices to equal marginal cost would cause them to make losses. To keep these firms in business, the government would need to help them cover these losses. Rather than raising taxes to pay for these subsidies, policymakers may decide it is better to live with the inefficiency of monopolistic pricing.
Another way in which monopolistic competition may be socially inefficient is that the number of firms in the market may not be the "ideal" one. That is, there may be too much or too little entry. One way to think about this problem is in terms of the externalities associated with entry. Whenever a new firm considers entering the market with a new product, it considers only the profit it would make. Yet its entry would also have two external effects: a)The product-variety externality: Because consumers get some consumer surplus from the introduction of a new product, there is a positive externality associated with entry; b)The business-stealing externality: Because other firms lose customers and profits from the entry of a new competitor, there is a negative externality associated with entry. Thus in a monopolistically competitive market, there are both positive and negative externalities associated with the entry of new firms. Depending on which externality is larger, a monopolistically competitive market could have either too few or too many products. Both of these externalities are closely related to the conditions for monopolistic competition. The former arises because a new firm would offer a product different from those of the existing firms. The latter arises because firms post a price above marginal cost and, therefore, are always eager to sell additional units. Conversely, because perfectly competitive firms produce identical goods and charge a price equal to marginal cost, neither of these externalities exists under perfect competition.
In the end, we can conclude only that monopolistically competitive markets do not have all the desirable welfare properties of perfectly competitive markets. That is, the invisible hand does not ensure that total surplus is maximized under monopolistic competition. Yet because the inefficiencies are subtle, hard to measure, and hard to fix, there is no easy way for public policy to improve the market outcome.
What does a new firm think about when it considers entering the market with a new product?
选项 A、Two external effects.
B、The externalities associated with entry.
C、The number of firms in the market.
D、The profit it would make.
答案D
解析
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