Can you explain it simply and clearly, especially the formula? Productive and Allocative Efficiency of Monopolistic Competition Price = Minimum Average Total Cost Most of the monopolistic competitive firms cannot achieve productive efficiency since they sell a higher or bigger price than the minimum average cost, and it can actually cost a loss of money in their minimum ATC. In monopolistic competitive firms they can also use their excess capacity but they would only produce a quantity equal to their minimum ATC. Yet they Might not be able to sell that in the amount without lowering their prices. So it's either reducing their profits or incurring losses. In addition, monopolistic firms doesn't meet the allocative efficiency. They cannot achieve it because allocative efficiency requires that Price = Marginal Cost. The monopolistic firm shows a downward sloping demand curve which means to sell more unit they must lower the price of all the units. The firm maximize profits when marginal revenue = marginal cost. But this is only occur when the quantity less than what a purely competitive Firm would produce, where marginal cost = market price. The marginal cost curve and the marginal revenue curve will always intersect or will always meet before it intersects the demand curve. Because as a previously state at any given quantity the marginal revenue is always less than the market price. Because of this allocative inefficiency some consumer will give up the product because of its price .Monopolistic competitive achieve neither productive nor allocative efficiency.
Can you explain it simply and clearly, especially the formula?
Productive and
Price = Minimum
Most of the monopolistic competitive firms cannot achieve productive efficiency since they sell a higher or bigger price than the minimum average cost, and it can actually cost a loss of money in their minimum ATC. In monopolistic competitive firms they can also use their excess capacity but they would only produce a quantity equal to their minimum ATC. Yet they Might not be able to sell that in the amount without lowering their prices. So it's either reducing their
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