-Fresh Taste, Inc. produces organic breakfast cereals. The market for breakfast cereals is monopolistically competitive. The figure above shows the demand curve that Fresh Taste faces (D) , the company's marginal revenue curve (MR) , its marginal cost curve (MC) , and its average total cost curve (ATC) . Fresh Taste's excess capacity is

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In monopolistic competition, firms produce less than the output at which average total cost is minimized, leading to excess capacity. If the minimum ATC occurs at 12,000 boxes and the firm produces 8,000 boxes, the excess capacity is 4,000 boxes.