Is monopolistic competition efficient?
What will be an ideal response?
Monopolistic competition is not efficient by the requirement for allocative efficiency MSB = MSC. The price equals the consumer's willingness to pay, which is the marginal social benefit and the firm's marginal cost is the marginal social cost. Product differentiation in monopolistic competition means that P > MR, which implies that P > MC at the quantity where MR = MC. Because P = MSB and MC = MSC, the result is that MSB > MSC, which signals inefficiency. However, when compared to the perfectly competitive alternative that all goods are identical, the variety offered by monopolistic competition makes monopolistic competition potentially efficient.
You might also like to view...
Which of the following explains why frictional unemployment exists in an economy?
A) It arises because job search is completely a supply side phenomenon in the labor market, and firms make no attempts to advertise for the vacancies they have. B) It arises because most of the workers shirk at work. C) It arises because it takes time for an unemployed worker to find a firm with a well-matched job vacancy. D) It arises because unemployment benefits encourage workers not to look for jobs.
A deadweight loss arises in a perfectly competitive market as each firm is a price taker
a. True b. False Indicate whether the statement is true or false
When a country occasionally buys or sells currencies to influence the exchange rate, but usually lets market forces determine the exchange rate, it has a:
A. fixed exchange rate. B. partially-flexible exchange rate. C. flexible exchange rate. D. gold standard.
In which of the following sets of antitrust cases did the government gain convictions?
A. The U.S. Steel case and the Microsoft case. B. The Alcoa case and the Microsoft case. C. The DuPont cellophane case and the AT&T case. D. The U.S. Steel case and the Alcoa case.