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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