As in Monopoly, Monopolistically Competitive firms maximize profit by operating where MR = MC rather than where P = MC, thus they will produce less and sell at a higher price than the allocatively efficient outcome.

    As before this leads to a deadweight loss shown to the right as the brown area. In the case of Monopolistic Competition this deadweight loss is the price we pay, as a society, for having diverse versions of the goods we consume. Remember that the downward sloping demand curve is the result of product differentiation. Most societies have taken the view that this level of inefficiency is a justifiable cost for product choice, so anti-trust law is not typically concerned with trying to alter the Monopolistically Competitive structure.

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