Wastages of Monopolistic competition

Wastages of Monopolistic competition:

1. Unemployment:

Under monopolistic competition, the firms generate less than optimum output. As an outcome, the productive capacity is not employed to the fullest extent. This will lead to redundancy of resources.

2. Excess capacity:

Surplus capacity is the difference among the optimum output which can be generated and the real output generated by the firm. In the long run, a monopolistic firm generates an output that is less than the optimum output which is the output corresponding to the minimum average cost. It leads to surplus capacity that is regarded as waste in monopolistic competition.

3. Advertisement:

There are number of wastes in competitive advertisements under monopolistic competition. The wasteful and competitive advertisements lead to high price to consumers.

4. Too Many Varieties of Goods:

Introducing numerous varieties of a good is the other waste of monopolistic competition. The goods vary in shape, size, style and color. A reasonable number of varieties would be enviable. Cost per unit can be decreased when only a few are generated.

5. Inefficient Firms:

Under monopolistic competition, ineffective firms charge prices more than their marginal cost. Such kind of inefficient firms must be kept out of the industry. However, the buyers’ preference for these products enables the ineffective firms to continue to exist. Proficient firms can’t drive out the inefficient firms since the former might not be capable to attract the customers of the later.

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