10. One of the problems in evaluating the efficiency of monopolistic competition is that there is no obvious or agreed upon way to evaluate whether the amount of allocative inefficiency is justified by the amount of product diversity.

   Product diversity is the difference between perfect competition and monopolistic competition. Without product diversity the demand curve would be horizontal and all the efficiency outcomes of perfect competition, including allocative efficiency, would hold for monopolistic competition. Since product diversity may also be desirable, this inefficiency may be overstated by deadweight loss calculations, such as that shown to the right. However, there is no clear way to judge how much product diversity is justified, and how much is excessive, so the efficiency results are difficult to evaluate.

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