Economists Have Long Debated Whether There Is a Significant Loss

question 259

Multiple Choice

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive.Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being?

• A)Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost.
• B)Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.
• C)Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost.
• D)Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.

---

Definitions:

Pareto Optimal

A state of allocation of resources in which it is impossible to make any individual better off without making at least one individual worse off.

Reallocation

The process of distributing or reallocating resources, tasks, or investments in a different manner with the aim to improve efficiency, returns, or outcomes.

Utility Increase

A rise in the level of satisfaction or benefit that a consumer derives from the consumption of goods or services.

Contract Curve

In economics, it represents the set of optimal distributions of goods or resources between parties that maximizes their utility in an exchange.