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jeremiah693

Answer:

We live in an economy based on scarcity. Things that are rare cost more. The more access can be restr ed, the higher the cost can be and so higher profits. Since our economy wants to maximise profits, and thus scarcity, the best way for companies/ individuals to do that is to get monopolies, or oligopolies, and then restrict access, and increase prices. If you produce as much as possible at cost, making no profits, then there is going to be little scarcity for that product, costs are going to be low.

A firm under monopolistic competition operates its plant at suboptimal capacity to create a sense of limited goods in people's minds.

What is monopolistic competition?

Monopolistic competition is termed as a process in which the companies produce similar products but not exactly the same product that acts as substitute.

A firm under monopolistic competition operates its plant at suboptimal capacity, which means that they do not make the product at its best capacity. That means that if a country can make 100 products, that company will only make 750 of them even after the demand also.

It gives a sense of scarcity among the people and also these products can be sold by this company at a higher price or opt for low substitutes which makes the monopolistic company earn more.

Learn more about monopolistic competition, here:

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