A monopolistically competitive firm is inefficient because the firm
A) is producing at an output where marginal cost equals price.
B) is not maximising its profits.
C) produces a product identical to that of its competitors.
D) makes positive economic profit in the long run.
E) produces at an output level where average total cost is not at its minimum.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm produces at a quantity where marginal revenue equals marginal cost, which is not allocatively efficient. Additionally, the firm's prices are higher than the marginal cost, which leads to productive inefficiency, as the firm is not producing at the lowest cost. Therefore, the output level is not at the minimum average total cost.

A Monopolistically Competitive Firm Is Inefficient Because the Firm