The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
-Refer to Figure 11-3.A monopolistically competitive firm is said to be inefficient because in the long-run equilibrium

Question

The diagram below shows demand and cost curves for a monopolistically competitive firm.
  FIGURE 11-3
-Refer to Figure 11-3.A monopolistically competitive firm is said to be inefficient because in the long-run equilibrium

Quizplus · Accepted Answer

In a monopolistically competitive market, firms are inefficient in the long run because they do not produce at the minimum of the long-run average cost curve (LRAC). This means they are not achieving productive efficiency, where the cost of producing an additional unit (marginal cost) is equal to the average cost of producing that good, and the average cost is at its lowest possible point.

The Diagram Below Shows Demand and Cost Curves for a Monopolistically