Another Econ Q

which of the following arguements about effiency of monopolistic competition in allocating resources is most accurate? A) since economic profits in the long run are zero for firms in monopolistic competition, the industry will produce the efficient quantity of the product b) firms under monopolistic competition differentiate their products, which tend to offset any inefficiency compares to perfect competition. I put A however the answer is B. Can someone please explain why A is wrong? Thanks

Nobody BUT a monopolist makes economic profit in the long run.

well for monopolistic aren’t econ profit possible in the short term and then new companies enter the industry reduce it to zero?

Nobody enters a monopolistic market. There is only one seller, imposible barriers to entry.

you’re talking about monoply… this is monopolistic

I think the trick here is “most accurate” I think they are both correct. But the fact that product diff offset other ineff, is very important in theory…so they pbly think it’s more accurate. These are the ones I am afraid of… when even knowing the theory one doubts on how to answer.

“differentiate their products” this is the key

MY BAD SORRY! I was constantly thinking MONOPOLY! you are right.

I think daniela is right the key is “MOST ACCURATE”… anyway thanks all

yes, differentiate the product is the key word. Plus, only perfect competition makes the maximun out of allocative efficiency, but through differentiation, monopolistic competitors are able to offset the potential inefficiencies.