Productive efficiency refers to a situation where a good is produced at the lowest possible cost whereas allocative efficiency refers to the situation where every good and service is produced up to the point where the last unit provides a marginal benefit to consumer equal to the marginal cost of producing it. In a perfectly competitive market, both productive and allocative efficiency are achieved, but in a monopolistically competitive market, none is achieved (bummer!). Thus, consumers are paying a price that is greater than marginal cost and there is some deadweight loss (double bummer!). In your perspective, is there some gain to society from the existence of monopolistically competitive firms? Are there products for you which highly value the variety available? Do you consume products where variety is less important? What trade-off do you identify here?
Productive efficiency refers to a situation where a good is produced at the lowest possible cost
whereas allocative efficiency refers to the situation where every good and service is produced up to the point where the last unit provides a marginal benefit to consumer equal to the marginal cost of producing it. In a perfectly competitive market, both productive and allocative efficiency are achieved, but in a monopolistically competitive market, none is achieved (bummer!). Thus, consumers are paying a price that is greater than marginal cost and there is some deadweight loss (double bummer!).
In your perspective, is there some gain to society from the existence of monopolistically competitive firms? Are there products for you which highly value the variety available? Do you consume products where variety is less important? What trade-off do you identify here?
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