“In monopolistic ally competitive markets neither allocation nor productive efficiency is realized.” Explain
What will be an ideal response?
Price will exceed marginal cost because each firm does not face a perfectly elastic demand curve. This indicates that society values additional units of these goods more than alternative products, so allocation efficiency is not realized.
Furthermore, production takes place short of the least-cost output level resulting in higher unit costs than the minimum attainable. Monopolistic ally competitive firms tend to be underutilized because there are so many competitors in the same industry that it is overcrowded with firms. Also, some argue that advertising is an unnecessary cost of production that contributes to high costs and prices. In other words, productive efficiency is not realized either.
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