Monopolistic competition is judged to be economically inefficient because

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Monopolistic competition is characterized by a market with many firms selling differentiated products, each with some amount of market power. In the short run, firms can earn economic profits by setting prices above their marginal costs. However, in the long run, new firms can enter the market and compete away those profits, driving prices back down towards marginal cost. This means that in the long run, firms in monopolistic competition will produce at a level where price exceeds marginal cost, which is inefficient from a societal perspective since resources are not being allocated to their highest valued use.

Monopolistic Competition Is Judged to Be Economically Inefficient Because