Monopolistic competition takes its name because of the fact that it combines the many buyers and sellers of perfect competition with the greater flexibility in pricing observed in monopoly. As a result the firm is likely to produce less as a result of each firm representing a small proportion of the market and sell at a higher price than under perfect competition which has made many economists consider monopolistic competition as an inefficient market structure. Monopolistic competition, apart from the large amount of buyers and sellers is also characterised by product differentiation which is what gives producers the flexibility to...
that the many buyers and sellers observed in perfect competition and monopolistic competition lead to the long run equilibria in both industries presenting normal profits. However, the normal profits for perfect competition are at the minimum point of its average total cost curve whereas in monopolistic competition they are at the point of diminishing marginal costs thus reflecting excess capacity. Even though his excess capacity could be considered a sign of inefficiency it is important to understand that it reflects a trade-off between lower costs and greater choice and thus we can't make such an assessment with absolute certainty.