A monopolistically competitive firm has excess capacity because in the

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In the long run, a monopolistically competitive firm has excess capacity because its ATC exceeds its minimum ATC. This means that it produces at a level that is less than the optimal output level that would minimize its average total cost. Therefore, the firm has excess capacity or unused resources. In the short run, the firm may have excess capacity too, but this is not the main reason for it. The other choices do not explain the reason for the excess capacity in a monopolistically competitive firm.

A Monopolistically Competitive Firm Has Excess Capacity Because in the