Under monopolistic competition, small inefficiencies are the price we pay to get greater variety and innovation.

Question

Quizplus · Accepted Answer

Monopolistic competition allows for a large number of firms to compete based on product differentiation, advertising, and other non-price factors. It is not perfectly efficient because there is some market power and excess capacity, but it does allow for greater variety and innovation in products as firms try to differentiate themselves and attract consumers. So, small inefficiencies are often considered an acceptable trade-off for these benefits.

Under Monopolistic Competition, Small Inefficiencies Are the Price We Pay