ultiple Select QuestionSelect all that applyIn the long run, a monopolistic competitor fails to achieve which of the following?Multiple select question.Excess capacityProductive efficiencyAllocative efficiencyA normal profit
Question
ultiple Select QuestionSelect all that applyIn the long run, a monopolistic competitor fails to achieve which of the following?Multiple select question.Excess capacityProductive efficiencyAllocative efficiencyA normal profit
Solution
In the long run, a monopolistic competitor fails to achieve:
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Productive efficiency: This is because in monopolistic competition, firms do not produce at the lowest point of their average cost curve. They operate with excess capacity.
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Allocative efficiency: Monopolistic competitors do not produce at the point where price equals marginal cost, hence they fail to achieve allocative efficiency.
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Excess capacity: Monopolistic competitors operate with excess capacity, meaning they could produce more than they do. However, this is not considered a failure, but rather a characteristic of monopolistic competition.
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A normal profit: This is not necessarily true. In the long run, a monopolistic competitor can still make a normal profit. This is because if they were making losses, they would exit the market, and if they were making supernormal profits, more firms would enter the market, driving profits down to a normal level.
So, a monopolistic competitor fails to achieve productive efficiency and allocative efficiency.
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