In monopolistic competition there is allocative inefficiency because
A)Price is greater than the minimum ATC.
B)Production is not at the minimum ATC.
C)Of excess capacity.
D)Price is greater than MC.

Question

Quizplus · Accepted Answer

In monopolistic competition, allocative inefficiency occurs because the price charged by firms is greater than the marginal cost (MC) of production. This means that the price consumers pay is higher than the cost of producing one more unit, leading to an inefficient allocation of resources where the quantity produced is less than what would be socially optimal.

In Monopolistic Competition There Is Allocative Inefficiency Because