Asked by Peter Manyang Bichok on Jun 13, 2024
Verified
Refer to Figure 12.1.2 above. Which of the following best describes the reason for the shaded triangle in panel (b) ?
A) The triangle shows the benefits of advertising and product differentiation, which do not exist in perfect competition.
B) The triangle describes the improvement in efficiency in monopolistic competition.
C) The triangle describes the deadweight loss associated with market power in monopolistic competition.
D) The gains in allocative efficiency under monopolistic competition, compared to a perfectly competitive market.
Deadweight Loss
A loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable.
Monopolistic Competition
describes a market structure where many firms sell products that are similar but not identical, leading to competition.
Allocative Efficiency
A state of the economy where resources are allocated in a way that maximizes the overall welfare or utility of consumers.
- Understand the role of advertising and product differentiation in monopolistic competition.
Verified Answer
HA
Hamda AhmedJun 18, 2024
Final Answer :
C
Explanation :
The shaded triangle represents the deadweight loss associated with market power in monopolistic competition. This is because monopolistically competitive firms have some degree of market power, which allows them to charge higher prices and produce less output than would occur in a perfectly competitive market, resulting in a loss of allocative efficiency. The triangle represents the welfare loss to consumers and producers that arises from this inefficiency.
Learning Objectives
- Understand the role of advertising and product differentiation in monopolistic competition.