Answer to Question #205165 in Microeconomics for nikita deswal

Question

In recent years, most towns and cities have seen a rapid growth in the number of coffee shops and sandwich bars, the majority of which are small and locally-owned. Evaluate, using an appropriate diagram(s), whether such small firms, operating in a monopolistically competitive market, can be economically efficient. [25. PARA 1 deination 2 to 3 points wit evluations and linked easioning and a substantial judgement

Answer 1

Because monopolistic businesses set prices higher than marginal costs, consumer surplus is much less than it would be in a truly competitive market. This leads to deadweight loss and an overall drop in economic surplus.