Stewart (2002) argues that although cost and high prices within Monopolistic Competition normally act against the consumer "it does not follow that welfare is not being maximised". What arguments does he present in his article to support this case?

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Stewart (2002) argues that although cost and high prices within Monopolistic Competition normally act against the consumer "it does not follow that welfare is not being maximised". What arguments does he present in his article to support this case?

This essay will describe the features of monopolistic competition and the way in which profits are reduced. It will discuss what makes consumers demand one product over another, and highlight the issues a producer has in supplying them. The concept of consumer and producer surplus will be introduced, and show the effect these have on welfare. The effect of large product variety and the reasons why deadweight loss arises will also be explored.

Monopolistic (imperfect) competition as discussed by Stewart (2002), by definition means that there is a high concentration of firms, producing goods or services that are close, but not perfect substitutes for each other (Xrefer,1998). Differentiating one product from another is said to be the most important part of competition (Spence, 1976). These goods may be differentiated only in the minds of the consumer. This could be due to fashions or tastes which consumers prefer, or by geographical locations of outlets where goods can be purchased more