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Under monopolistic or imperfect competition, there are wastes of expenditures. Wastes of monopolistic competition are in brief as follows:

(i) Huge expenditure on advertisement: The entrepreneurs in order to overcome the irrational preferences of the consumers like prejudices, liking of commodities, or shop or person have to spend large sums of money on advertisements. This is purely a waste from community point of view.

(ii) Expenditure on cross transportation: Another waste of monopolistic competition is the expenditure incurred on the cross transportation of the commodity. For example, if a commodity produced in New York is very similar to the commodity produced in Washington, the buyers in Washington due to their irrational preferences may demand the commodity produced in New York and vice versa. Had the buyers given preference to the commodity produced in their own locality, this would have saved the expenditure on cross transportation of the goods.

(iii) Production of variety of products: Under monopolistic (imperfect) competition, an industry may not specialize in the production of those commodities for which it is best fitted. This is because of fact that it has to spend large sum of money on advertisement and secondly it has to cut down the prices in order to attract the customers. So it may find advantageous “to produce varied assortment of types and qualities to sell to its own particular customers rather than face the cost of attracting a large number of customers for one type of product alone”.

(iv) Existence of inefficient firms: Under monopolistic (imperfect) competition, the inefficient firms also continue producing the commodities along with the efficient firms due to irrational preferences of the customers. The customers, therefore, have to pay higher prices for the goods produced by the inefficient firm. The consumers, thus, suffer monetary loss and the nation wastage of resources.

(v) Prevents standardization of products: Another wastage of imperfect competition is that it prevents the standardization of the commodities. When goods are standardized, they can be produced on a large scale. In case of monopolistic competition or imperfect competition, no producer would like to produce any design of the commodity on a large scale because it involves risk. The liking of the design may change and his goods remain unsold.

(vi) A firm need not be of the optimum size: Under perfect competition, all the firms in the long run are of optimum size and they are producing at the lowest average cost. If a firm is not of most efficient size, it will have to expand its output so that it should produce at minimum average cost.

Under monopolistic competition, a firm need not be of the optimum size. There is no doubt that if it expands its output, the average cost will fall but then it will have to lower the price as well. The reduction in price may result in decrease of total revenue. So the firm may not expand its scale of business.

From this, we conclude, that the total number of firms in an industry, under monopolistic competition, will be greater than under perfect competition. This is due to the fact that in perfect competition all the firms are, of the most efficient size and inefficient firms are eliminated. While in monopolistic competition, inefficient firms along with efficient firms continue to exist. The society, thus, pays higher prices for the products.