Monopolistic competition might be efficient if

Question

Quizplus · Accepted Answer

Monopolistic competition leads to a higher degree of product variety and differentiation, which can provide benefits to consumers. However, it also leads to a lower quantity produced and potentially higher prices. The loss from not producing at the efficient quantity is offset by the gain from having a greater degree of product variety. Therefore, monopolistic competition can be efficient if the gain from product differentiation outweighs the loss from not producing at the efficient quantity.

Monopolistic Competition Might Be Efficient If