Refer to the diagrams. With the industry structures represented by diagram
A) (B), there will be allocative efficiency.
B) (A), economic profit can persist in the long run.
C) (B), output will be less than in diagram (A).
D) (B), output will be the same as in diagram (

Question

Quizplus · Accepted Answer

In diagram B, the industry structure is monopolistic competition, whereas in diagram A, it is perfect competition. In monopolistic competition, firms have some market power, which allows them to charge a higher price than in perfect competition. As a result, output will be less in diagram B than in diagram A, leading to allocative inefficiency. Additionally, firms in monopolistic competition earn zero economic profit in the long run, unlike in perfect competition where economic profit is competed away. Thus, option C is the best choice.

Refer to the Diagrams