Monopolistic competition and economic efficiency

Monopolistic competition is a market structure where many businesses sell similar but not identical products, like restaurants or clothing brands. Each company has some power to set prices because of product differences. Economic efficiency occurs when resources are used in the best way to meet consumers' needs without wasting anything. In monopolistic competition, it’s less efficient because companies might charge higher prices and produce less than ideal output, leading to some wasted resources and a less optimal outcome for society. Despite this, these markets often promote variety and innovation, benefitting consumers.