Which of the following is true?
A)Monopolistic competition and perfect competition are both inefficient.
B)Monopolistic competition is efficient because of product differentiation.
C)The inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers.
D)The inefficiency of monopolistic competition is a result of advertising expenses.

Question

Quizplus · Accepted Answer

Monopolistic competition is inefficient because firms have some market power and can charge higher prices than in perfect competition, but it may be worth it because consumers have a much wider range of products to choose from. Product differentiation is also a factor in monopolistic competition, but it does not necessarily make it efficient. Advertising expenses may contribute to inefficiency, but they are not the only factor.

Which of the Following Is True