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 first decrease, then increase. B. will increase. C. will remain unchanged. D. will decrease.

Question

Business

Burke

31 January, 01:43

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 first decrease, then increase. B. will increase. C. will remain unchanged. D. will decrease.

+4

Answers (1)

Know the Answer?

Karla Berry · Answer 1

B. will increase

Explanation:

Assuming that 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 will increase. Because after trade, assuming firms in both countries make economic (excess) profits, this will attract entry of other firms into the industry in both markets. So, number of firms will increase. The correct answer is Option (B).