The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because
A)there are too few firms to reach an efficient level of production.
B)firms do not operate at the output that minimizes average costs.
C)more advertising is needed to inform customers about product differences.
D)consumers do not have enough choice among the product varieties available.

Question

Quizplus · Accepted Answer

Monopolistic competition is considered inefficient because firms in this type of market structure do not operate at the output level where average costs are minimized. This is because firms in monopolistic competition have some market power due to product differentiation, which allows them to charge a price above marginal cost. This results in a lower output and higher price compared to perfect competition. As a result, monopolistic competition results in an inefficient allocation of resources.

The Traditional View of Monopolistic Competition Holds That This Type