One source of inefficiency in monopolistic competition is that

Question

Quizplus · Accepted Answer

Monopolistically competitive firms have market power and can charge prices above marginal cost. This leads to inefficiency because some units that buyers value in excess of the cost of production are not produced, causing a deadweight loss. Additionally, monopolistically competitive firms may produce beyond their efficient scale, which also leads to inefficiency. However, it is not necessarily true that monopolistically competitive firms earn economic profits in the long run, as they may face competition from other firms entering the market. Finally, while surplus is redistributed from buyers to sellers due to the pricing power of the firm, this alone is not a source of inefficiency.

One Source of Inefficiency in Monopolistic Competition Is That