A monopolistically competitive industry does not display _______________ because ______________________.

Question

BlackTom AI · Accepted Answer

Starting from the principles of monopolistic competition, we analyze what efficiency properties such an industry attains. 
Option 1 suggests allocative efficiency occurs with P = MC, which would imply no deadweight loss and resources allocated where price equals marginal cost. However, in monopolistic competition, firms have some market power due to product differentiation, leading to P > MC at the equity-maximizing quantity and thus allocative inefficiency. This makes the statement false.
Option 2 states allocative inefficiency by saying allocative efficiency does not hold because P > MC. The reasoning aligns with the standard result: because firms charge a price above marginal cost, the quantity produced is less than the socially optimal level, creating a deadweight loss and a misallocation of resources. Therefore, this option correctly characterizes the inefficiency associated with monopolistic competition.
Option 3 posits productive efficiency with P < MC. Productive efficiency occurs when firms produce at the minimum average cost, which tends to be associated with industries where competition is intense enough to push prices down toward marginal cost, not with the typical monopolistic competition outcome. In practice, P > MC and often above minimum ATC due to excess capacity, so this claim is inconsistent with the usual profile of monopolistic competition.
Option 4 claims productive efficiency with P = MC. While P = MC would imply allocative efficiency, productive efficiency requires production at minimum average cost, and monopolistic competition typically does not operate at the minimum ATC due to excess capacity and brand differentiation. This makes the pair unlikely in this context, rendering the statement incorrect.
Overall, the correct line of reasoning is that monopolistic competition does not display allocative efficiency because price exceeds marginal cost, reflecting the presence of downward-sloping demand for differentiated products and some market power among firms. This combination explains why option 2 captures the standard inefficiency feature.

Econ 103 Makeup Exam Course Econ103 Makeup Final Exam Summer 2025

A monopolistically competitive industry does not display _ because ________.

查看解析

登录即可查看完整答案

类似问题

The condition for allocative efficiency is violated when

The following questions refer to the monopoly graph below, where MC = marginal cost, ATC = average total cost, D = demand, and MR = marginal revenue. Which Q and P represents allocative efficiency?

Imperfectly competitive markets do not achieve allocative efficiency because profit maximization for each firm occurs when which of the following is true?

Production occurs up to that level of output at which price Blank ______ marginal cost, resulting in allocative efficiency under pure competition.

The allocatively efficient level of output is produced in any market structure when

The condition for allocative efficiency is

A situation in which an economy is using its resources to produce the best combination of goods and services to satisfy consumer desires is called

When an economy produces a good such that the marginal benefit equals the marginal cost, this indicates that Blank ______. BlackTom题目解析

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单