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Using a no economic profit situation, show how pure competition would benefit the economy more than...

Using a no economic profit situation, show how pure competition would benefit the economy more than a monopolistically competitive market (P, Q, employment, consumer surplus, minimum ATC)

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Answer #1

Perfect competiton equilibrium at Intersection of demand and supply or p=MC

While Monopolistic competition Equilibrium is at MR=MC

Both market are in long run equilibrium with zero economic profit.

But the total welfare in perfect competition is higher than Monopolistic competition because the Equilibrium Quantity satisfy both allocative efficiency ( P=MC) and productive efficiency ( p=ATC), while Monopolistic competition only satisfy productive efficiency. So total welfare in perfect competition is higher than Monopolistic competition.

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