Quick Answer: Is A Monopolistically Competitive Firm Allocatively Efficient?

In what sense does a monopolistically competitive firm have excess capacity?

In long-run equilibrium, firms in a monopolistically competitive industry sell at a price greater than marginal cost.

They also have excess capacity because they produce less than the minimum-cost output; as a result, they have higher costs than firms in a perfectly competitive industry..

How might a monopolistically competitive firm continually earn an economic profit?

How might a monopolistically competitive firm continually earn economic profit greater than​ zero? … Unlike in perfectly competitive​ markets, in monopolistically competitive​ markets, firms face​ downward-sloping demand​ curves, and the products competitors sell are differentiated.

What are the 4 conditions of monopolistic competition?

Monopolistic competition is a market structure defined by four main characteristics: large numbers of buyers and sellers; perfect information; low entry and exit barriers; similar but differentiated goods.

Why are perfectly competitive firms Allocatively efficient?

Allocative efficiency is achieved in a perfectly competitive market precisely because firms will always wish to maximize their profits by producing the quantity of goods at which their marginal cost equals the price.

Are perfectly competitive firms Allocatively efficient?

Perfect competition is considered to be “perfect” because both allocative and productive efficiency are met at the same time in a long-run equilibrium.

What are the disadvantages of monopolistic competition?

Disadvantages of monopoliesHigher prices than in competitive markets – Monopolies face inelastic demand and so can increase prices – giving consumers no alternative. … A decline in consumer surplus. … Monopolies have fewer incentives to be efficient. … Possible diseconomies of scale.More items…•

Why perfect competition is efficient?

In the long run in a perfectly competitive market—because of the process of entry and exit—the price in the market is equal to the minimum of the long-run average cost curve. … In other words, goods are being produced and sold at the lowest possible average cost.

Is a monopolistically competitive firm Allocatively efficient quizlet?

Monopolistically competitive firms are not productively efficient because they do not produce at minimum average total cost and they are not allocatively efficient because they produce where price is greater than marginal cost.

Is monopolistic competition Allocatively efficient?

Because a good is always priced higher than its marginal cost, a monopolistically competitive market can never achieve productive or allocative efficiency. … Because monopolistic firms set prices higher than marginal costs, consumer surplus is significantly less than it would be in a perfectly competitive market.

Is a monopolist Allocatively efficient Why or why not?

Monopolists are not allocatively efficient, because they do not produce at the quantity where P = MC. As a result, monopolists produce less, at a higher average cost, and charge a higher price than would a combination of firms in a perfectly competitive industry.

Why monopolistic competition is inefficient?

A monopolistically competitive firm is inefficient because it has market control and faces a negatively-sloped demand curve. Monopolistic competition does not efficiently allocate resources. The reason for this inefficiency is found with market control and negatively-sloped demand curve.

Why are monopolies inefficient 3 reasons?

Monopolies are inefficient compared to perfectly competitive markets because it charges a higher price and produces less output. The term for inefficiency in economics is deadweight loss. Since the monopolist charges a price greater than its marginal cost, there is no allocative efficiency.