The economic inefficiency of monopolistic competition means that:

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products from competitors which often leads to excess capacity and inefficient use of resources. In order to cover their higher costs, firms produce at an output lower than the point of minimum average total cost and charge a price higher than the marginal cost. This results in economic inefficiency as resources are not allocated efficiently.

The Economic Inefficiency of Monopolistic Competition Means That