Final answer:
In the long run, monopolistic competition results in higher unit costs than perfect competition, showing a lack of productive efficiency as firms do not produce at the lowest possible average cost. This is contrasting to perfect competition, which is the benchmark for efficiency stating that price equals marginal cost and goods are produced at the lowest average cost.
Step-by-step explanation:
In the long run, monopolistic competition leads to higher unit costs compared to perfect competition, which implies that the market does not achieve productive efficiency.
Unlike perfect competition where firms produce at the lowest point on the average cost curve, monopolistic competition results in firms pricing their products on the downward-sloping portion of the curve. This means that goods are not produced at the minimum average cost, leading to inefficiencies in the market.
Monopolistic competition differs from perfect competition in that it leads to a variety of goods but fails to ensure productive efficiency, as firms do not operate at the minimum of average cost. Moreover, the price set by firms in monopolistic competition does not equate to marginal cost, further deviating from the optimal outcome featured in perfect competition.
Therefore, while monopolistic competition may provide consumer variety, it does not represent an efficiently operating market structure from a cost perspective, compared to the hypothetical benchmark of perfect competition.