question archive Monopolistically competitive firms are productively inefficient because production occurs where: A
Monopolistically competitive firms are productively inefficient because production occurs where: A
Subject:EconomicsPrice:2.85 Bought3
Monopolistically competitive firms are productively inefficient because production occurs where:
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A. marginal cost is greater than marginal revenue. |
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B. marginal cost is less than marginal revenue. |
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C. average total cost is greater than the minimum average total cost. |
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D. average total cost is less than the difference between average total cost and average variable cost. |
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Correct option is (C).
A monopolistic competitive firm maximizes profit by equating Marginal revenue (MR) with Marginal cost (MC). Since demand curve is downward sloping, Price > MR, so Price > MC. At this output level, Average total cost (ATC) is lower than minimum ATC, so there is productive inefficiency (Condition for productive efficiency is that output should be produced at lowest possible ATC).
