Question

Does the fact that monopolistically competitive firms do not achieve productive efficiceny or allocative efficency mean that there is a significant loss in consumer welfare?

Answer 1

Ans:- Monopolistic competition is an imperfect competition .In monopolistic competition several manufacturers sell their products that are similar but they are not perfect substitutes. The monopolistic competitive market cannot attain productive efficiency or allocative efficiency because in the monopolistic competition, products price is always valued higher than its marginal cost. Monopolistic competition firms doen't produce goods at the minimum price because the producers want more profit. Its profit making results consumer loss and also it create a significant loss in consumer welfare.