Monopolistic competition results in
A)Allocative efficiency.
B)Production efficiency.
C)The wrong mix of output.

Question

Quizplus · Accepted Answer

Monopolistic competition results in the wrong mix of output because firms in this market structure have some market power and can differentiate their products to some extent. This leads to product differentiation and non-uniform pricing, which results in consumer surplus being inefficiently allocated across different varieties of the product. As a result, monopolistic competition is not allocatively efficient. Additionally, firms in this market structure are not able to achieve production efficiency because they produce at a quantity lower than the minimum cost point of the long-run average cost curve.

Monopolistic Competition Results in