A monopolistically competitive market could be considered inefficient because
A)marginal revenue exceeds average revenue.
B)price exceeds marginal cost.
C)the efficient scale of production is only achieved in the long run, not in the short run.
D)markup pricing does not occur in any other market structure.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some degree of market power and are able to set prices above marginal cost. This results in a deadweight loss (inefficiency) to society as output is lower and prices are higher than in a perfectly competitive market where price equals marginal cost. Therefore, option B is the correct answer. Option A is incorrect because marginal revenue exceeding average revenue is a characteristic of monopolies, not monopolistic competition. Option C is incorrect because the efficient scale of production can be achieved in the long and short run, but firms in monopolistic competition may not operate at the minimum point of their average total cost curve. Option D is incorrect because markup pricing can also occur in oligopolies and monopolies.

A Monopolistically Competitive Market Could Be Considered Inefficient Because