Refer to Figure 26.2 for a monopolistically competitive firm. At the profit-maximizing output and price, this firm is producing at an output level that achieves
A) Productive efficiency.
B) Allocative efficiency.
C) Maximum economies of scale.
D) Neither productive nor allocative efficiency.

Question

Refer to Figure 26.2 for a monopolistically competitive firm. At the profit-maximizing output and price, this firm is producing at an output level that achieves
A) Productive efficiency. 
B) Allocative efficiency. 
C) Maximum economies of scale. 
D) Neither productive nor allocative efficiency.

Quizplus · Accepted Answer

Monopolistically competitive firms do not achieve productive or allocative efficiency because they produce at a point where marginal revenue does not equal marginal cost and they have excess capacity. Therefore, they do not produce at the minimum average total cost nor do they produce the quantity that maximizes social welfare.