Principles of Microeconomics / Unit 9 MIC 0811 short lesson, about 20 seconds
The Efficiency Verdict
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The idea
Monopolistic competition fails both tests. Price exceeds marginal cost, so too little is produced: not allocatively efficient. Output sits above minimum average cost: not productively efficient.
In practice
The gap is smaller than monopoly's, since substitutes keep the price down.
Where people slip
The failures follow from differentiation itself, not from any firm's size or misconduct.
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