Productive efficiency does not hold for a profit-maximizing, monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies of scale region of its average total cost curve.

Question

Quizplus · Accepted Answer

In long-run equilibrium, a monopolistically competitive firm operates at a point where average total cost is not minimized, but it is not necessarily in the diseconomies of scale region. It operates with excess capacity, meaning it could produce more at a lower average cost, but it does not due to the downward-sloping demand curve it faces.

Productive Efficiency Does Not Hold for a Profit-Maximizing, Monopolistically Competitive