Monopolistic competition is an inefficient market structure because
A)marginal revenue equals marginal cost.
B)it has a deadweight loss, just as monopoly does.
C)long-run profits are zero due to free entry.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Monopolistic competition is inefficient because it leads to a deadweight loss, just like a monopoly. This is because the market structure leads to firms charging prices above marginal cost, resulting in fewer goods being produced and consumed than would occur under perfect competition. While long-run profits are typically zero in a monopolistically competitive market due to free entry, this does not make the market structure efficient.

Monopolistic Competition Is an Inefficient Market Structure Because