how the outcomes under monimopoliatic competition and under perfect competition compare?
Homework Answers
Monopolistic competition and Perfect competition:
Allocative efficiency in the long run:
Monopolistic competition= No, Firms are not producing where P=MC since demand curve faced by the firm is Downward sloping. P>MC in the long run.
Perfect competition= Yes, firms are allocative efficient as P= MC in the long run.
Productive efficiency:
Monopolistic competition= No, since the demand curve is downward sloping it doesn't meet the minimum level of LRATC. So productive efficiency is not there. So there is excess capacity.
Perfect competition= Yes, P= Minimum LRATC as individual firms take price as given.
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