Disadvantages (Demerits) of Monopolistic competition
- In the long run, firms earn normal profits and therefore it is not possible to expand on production and enjoy economies of large scale.
- There is production at excess capacity both in the short and long run. This leads to underutilization of resources hence unemployment and underemployment.
- There is duplication of commodities in the market in form of product differentiation. This leads to resource wastage.
- There is too much advertisement which leads to wastage of scarce financial resources. In addition the advertisement costs are shifted to the consumers in form of high prices hence exploiting consumers.
- Research is not possible in the long run. This is because firms earn normal profits and this may reduce the quality of the products.
CATEGORIES Economics
TAGS Dr. Bbosa Science
