Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms do not achieve productive efficiency as they operate with excess capacity, meaning they do not produce at the minimum average cost point. However, they may achieve allocative efficiency as they produce at a point where marginal cost equals marginal revenue, though not necessarily at the lowest possible cost.

Monopolistically Competitive Firms Achieve Allocative Efficiency but Not Productive Efficiency