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Answer to Question #76058 in Macroeconomics for Kxngolt

Question #76058
Allowing firms to charge a price above the marginal cost is important to promote innovations in the economy. Explain.
Expert's answer
Answer on Allowing firms to charge a price above the marginal cost is important to promote innovations in the economy

Allowing firms to charge a price above the marginal cost is optimal only for monopolistically competitive firms, but this will also create dead-weight loss and inefficiency, because in competitive markets P = MC = MR.

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