Efficiency Outcomes for Monopolistic Competition
- Allocative Efficiency will not occur in Monopolistic Competition. The profit maximizing firm sets MR = MC, leading to a price above and quantity below those where P = MC.
- Productive Efficiency will not occur in Monopolistic Competition with free entry in long run equilibrium. Firms will have excess capacity meaning they produce less than the productively efficient quantity.
- Technical Efficiency will occur in long run equilibrium due to free entry.
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