One source of inefficiency in monopolistic competition is that since price is above marginal cost, some units are not produced that buyers value in ?
Correct answer: D. excess of the cost of production and this causes a deadweight loss.
- A. Since price is above marginal cost surplus is redistributed from buyers to sellers
- B. monopolistically competitive firms earn economic profits in the long run
- C. monopolistically competitive firms produce beyond their efficient scale
- D. excess of the cost of production and this causes a deadweight loss.
Explanation
With price above marginal cost, some potential buyers value additional units more than the cost of producing them, but those units are not supplied. This loss of mutually beneficial transactions creates deadweight loss.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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