Wastages of Monopolistic competition

Wastages of Monopolistic competition

1.        Unemployment: Under monopolistic competition, the firms produce less than optimum output. As a result, the productive capacity is not used to the fullest extent. This will lead to unemployment of resources.

2.        Excess capacity: Excess capacity is the difference between the optimum output that can be produced and the actual output produced by the firm. In the long run, a monopolistic firm produces an output which is less than the optimum output that is the output corresponding to the minimum average cost. This leads to excess capacity which is regarded as waste in monopolistic competition.

3.  Advertisement: There is a lot of waste in competitive advertisements under monopolistic competition. The wasteful and competitive advertisements lead to high cost to consumers.

4.        Too Many Varieties of Goods: Introducing too many varieties of a good is another waste of monopolistic competition. The goods differ in size, shape, style and colour. A reasonable number of varieties would be desirable. Cost per unit can be reduced if only a few are produced.

5.        Inefficient Firms: Under monopolistic competition, inefficient firms charge prices higher than their marginal cost. Such type of inefficient firms should be kept out of the industry. But, the buyers' preference for such products enables the inefficient firms to continue to exist. Efficient firms cannot drive out the inefficient firms because the former may not be able to attract the customers of the latter.