Multiple Choice QuestionProductive efficiency in monopolistically competitive markets does not occur in the long run because firms set the priceMultiple choice question.on the supply curve where MR=MC to maximize economic profit, making output more than optimal from society's perspective.on the supply curve where VC=MR to maximize economic profit, making output less than optimal from society's perspective.on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.on the demand curve where MR=ATC to maximize economic profit, making output more than optimal from society's perspective.
Question
Multiple Choice QuestionProductive efficiency in monopolistically competitive markets does not occur in the long run because firms set the priceMultiple choice question.on the supply curve where MR=MC to maximize economic profit, making output more than optimal from society's perspective.on the supply curve where VC=MR to maximize economic profit, making output less than optimal from society's perspective.on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.on the demand curve where MR=ATC to maximize economic profit, making output more than optimal from society's perspective.
Solution
The correct answer is: "on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective."
Here's why:
In monopolistically competitive markets, firms have some degree of market power, which means they can set their own prices rather than taking the market price as given. They do this by producing where marginal revenue (MR) equals marginal cost (MC), which is the profit-maximizing condition for all firms.
However, this does not result in productive efficiency in the long run. Productive efficiency occurs when a firm produces at the lowest possible cost, which happens at the minimum point of the average total cost (ATC) curve. In monopolistically competitive markets, firms produce where MR=MC, not where ATC is at its minimum. This means they are not producing at the lowest possible cost.
Moreover, because these firms have market power, they can charge a price that is higher than marginal cost. This results in a quantity of output that is less than what would be considered optimal from society's perspective, leading to a deadweight loss. This is why productive efficiency does not occur in the long run in monopolistically competitive markets.
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