Economists have long debated whether there is a significant loss of wellbeing to society in markets that are monopolistically competitive rather than perfectly competitive.Which of the following offers the best reason why some economists believe that monopolistically competitive markets are less efficient than perfectly competitive markets?

Question

Quizplus · Accepted Answer

Monopolistically competitive markets are less efficient than perfectly competitive markets because neither allocative efficiency (where production is at the point where marginal cost equals price) nor productive efficiency (where production is at the lowest possible cost) is achieved in monopolistically competitive markets. This is in contrast to perfectly competitive markets where both types of efficiency are achieved. Options B, C, and D are all consequences of monopolistically competitive markets being less efficient, but they do not offer a reason why those markets are less efficient.

Economists Have Long Debated Whether There Is a Significant Loss