entry until profits are driven down to zero in the long run. If the firms in a monopolistically competitive

industry are suffering economic losses, then the industry will experience exit of firms until economic losses

are driven up to zero in the long run.

A monopolistically competitive firm is not productively efficient because it does not produce at the minimum

of its average cost curve. A monopolistically competitive firm is not allocatively efficient because it does not

produce where P = MC, but instead produces where P > MC. Thus, a monopolistically competitive firm will tend

to produce a lower quantity at a higher cost and to charge a higher price than a perfectly competitive firm.

Monopolistically competitive industries do offer benefits to consumers in the form of greater variety and

incentives for improved products and services. There is some controversy over whether a market-oriented

economy generates too much variety.

10.2 Oligopoly
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