Answer to Question #222078 in Microeconomics for Ali

Question

Does a monopolistic competitor produce too much or too little output compared to the most efficient level? What practical considerations make it difficult for policymakers to solve this problem?

Answer 1

Because it charges a price above the marginal cost of production, a monopolistic rival creates too little output. Because monopolistic enterprises already run at zero economic profits, policymakers find it difficult to regulate this situation.