A monopolistically competitive firm has excess capacity in the long run.This means that it:
A)produces less than the output at which average total costs are minimized.
B)produces less than the output at which price and marginal cost are equal.
C)could produce more by moving to a larger plant.
D)doesn't maximize profits.

Question

Quizplus · Accepted Answer

In the long run, a monopolistically competitive firm produces at a point where price is greater than the marginal cost, but less than the average total cost. This means it has excess capacity and could potentially produce more without increasing its cost per unit. Therefore, it produces less than the output at which average total costs are minimized.

A Monopolistically Competitive Firm Has Excess Capacity in the Long