A monopolistically competitive firm is inefficient because the firm

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some market power and can set their own prices to a certain extent. However, they face competition from other firms selling a similar but not identical product. As a result, they will not produce at the output level where price equals marginal cost, as they have some market power and can charge a price above marginal cost. This means they will not be producing at the minimum point of the average total cost curve, leading to inefficiency. Therefore, the correct answer is D - produces an output where average total cost is not minimum.

A Monopolistically Competitive Firm Is Inefficient Because the Firm