The deadweight loss from monopolistic competition includes the cost consumers pay for differentiated products.

Question

Quizplus · Accepted Answer

The deadweight loss from monopolistic competition includes the cost consumers pay for differentiated products because firms in monopolistic competition have some market power to set prices above marginal cost. Consumers who value the differentiation in products end up paying more than they would in a perfectly competitive market, which creates deadweight loss.

The Deadweight Loss from Monopolistic Competition Includes the Cost Consumers