Is monopolistic competition efficient? Explain. What is Edward Chamberlin's view about the efficiency of monopolistic competition?
What will be an ideal response?
Monopolistic competition is not efficient because a monopolistic competitive firm produces where price exceeds marginal cost and because in the long run a monopolistically competitive firm produces to the point at which average total cost is above minimum point of its average total cost curve. However, Chamberlin argued that the difference between the average cost of production for a monopolistic competitor and the minimum of average total cost represented the cost of producing differentiated products, which consumers value.
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