Use the following to answer question:
Figure: Monopolistic Competitor
-(Figure: Monopolistic Competitor)Use Figure: Monopolistic Competitor.If the firm shown in the figure produces at its profit-maximizing level,it will produce:
A)with excess capacity since its P is greater than MR.
B)without excess capacity since P is greater than ATC.
C)with excess capacity since that output level is on the downward-sloping portion of the ATC curve.
D)without excess capacity since that output level is on the downward-sloping portion of the MR curve.

Question

Use the following to answer question:
Figure: Monopolistic Competitor 
-(Figure: Monopolistic Competitor)Use Figure: Monopolistic Competitor.If the firm shown in the figure produces at its profit-maximizing level,it will produce:
A)with excess capacity since its P is greater than MR. 
B)without excess capacity since P is greater than ATC. 
C)with excess capacity since that output level is on the downward-sloping portion of the ATC curve. 
D)without excess capacity since that output level is on the downward-sloping portion of the MR curve.

Quizplus · Accepted Answer

In monopolistic competition, firms often do not produce at the minimum point of their average total cost (ATC) curve, which is where they would be fully utilizing their capacity. Instead, they produce at a level where marginal revenue (MR) equals marginal cost (MC), which typically occurs on the downward-sloping portion of the ATC curve, indicating that they are not producing at full capacity and thus have excess capacity.

Use the Following to Answer Question