A firm in monopolistic competition is
A) efficient because in the long run it makes zero economic profit.
B) efficient because it produces at the minimum average total cost.
C) inefficient because price exceeds marginal cost.
D) efficient because of the ease of entry.
E) efficient because it produces where MR = MC.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms are inefficient because the price they charge is higher than the marginal cost of production, indicating that resources are not allocated in the most efficient manner. This is a characteristic of monopolistic competition where firms have some market power to set prices above marginal costs, unlike in perfect competition where price equals marginal cost.

A Firm in Monopolistic Competition Is