In monopolistic competition,there is inefficiency because price is greater than marginal cost.What brings about this inefficiency?
A) high concentration, as indicated by the large concentration ratio
B) product differentiation
C) freedom of entry and exit
D) marginal cost rises as more output is produced
E) the fact there are many firms in the market

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products through branding, advertising, and other means, which allows them to charge higher prices than their marginal cost. This leads to inefficiency because the price charged is not equal to the marginal cost of production. As a result, output is lower and prices are higher than would be the case in a perfectly competitive market.

In Monopolistic Competition,there Is Inefficiency Because Price Is Greater Than