Monopolistic competition entails a deadweight loss to society, even if the firms earn zero economic profits.

Question

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In monopolistic competition, firms have some market power due to product differentiation, which allows them to charge prices above marginal cost. This results in a deadweight loss because not all consumers who value the product at more than its marginal cost are able to purchase it, leading to inefficiencies in the market even if firms are not earning any economic profits.

Monopolistic Competition Entails a Deadweight Loss to Society, Even If