Monopolistic competition is an
A)efficient market structure because long-run profits are zero.
B)efficient market structure because each firm produces at its efficient scale.
C)inefficient market structure because there is deadweight loss.
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

Monopolistic competition is an inefficient market structure because it leads to deadweight loss, as firms in the market have market power and charge prices above marginal cost, resulting in reduced consumer surplus and reduced total surplus. Additionally, long-run profits are not necessarily zero in monopolistically competitive markets, as firms may be able to differentiate their products and maintain a degree of market power. Therefore, options A and B are incorrect.

Monopolistic Competition Is an