Question

is the long-run equilibrium in monopolistic competition efficient? Explani.

Answer 1

A firm is said to be efficient when it is allocatively or productively effcient or both , the allocative efficency is achieved when the price equals the marginal cost of the production and a firm is productively effcient when it is producing at the minimum of the average total cost. A monopolistic firm is not efficient in the short run as well as the long run , the monopolistic firms enjoy some market power because they produce differentiated products and this makes them a price maker. In the short run as well as the long run the monopolistc firm charges a price that is well above the marginal cost and they does not produce on the minimum of the average cost curve , that is they have excess capacity. The monopolistic competition violates both the effciency conditions in the short run and the long run.

Ans: Not efficient.