Society benefits from monopolistic competition because the firms are allocatively efficient.

Question

Quizplus · Accepted Answer

Monopolistic competition is not allocatively efficient because firms in this market structure do not produce at the point where marginal cost equals price, which is the condition for allocative efficiency. Instead, they produce at a point where marginal revenue equals marginal cost, which results in a higher price and lower output level than what would be socially optimal.

Society Benefits from Monopolistic Competition Because the Firms Are Allocatively