Monopolistically competitive firms are productively inefficient because long-run equilibrium occurs at an output rate where

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a monopolistically competitive market, price equals ATC but ATC is greater than minimum ATC due to excess capacity. This means that firms are not producing at the minimum average cost, which indicates productive inefficiency. Option A is incorrect because MC being greater than MR is a characteristic of all markets, not just monopolistically competitive markets. Option B is also incorrect because, while price is greater than MC in the short run, in the long run price will equal MC.

Monopolistically Competitive Firms Are Productively Inefficient Because Long-Run Equilibrium Occurs