Firms in a monopolistic competition are not efficient. Resources are used efficiently when marginal social benefit equals marginal social cost. (PARKIN et. al., 2007:291). A product of service’s price measures it’s marginal social benefit. This means that if the price of a product or service exceeds it’s marginal social cost of producing it, then the quantity of produced is less that the efficient quantity. In the long-run, a firm in monopolistic competition product’s prices do exceed the marginal social cost of producing them.
List of references:
· PARKIN, M, POWELL, M, MATTHEW, K, 2008. Economics (7e). Essex, England: Pearson.
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