In the long run, a monopolistically competitive firm produces with excess capacity because the
A)firm is producing too much output to maximize profit.
B)firm does not produce at the point at which marginal cost is minimized.
C)long-run output level occurs at the point at which average total cost is falling.
D)firm could produce more and reduce average fixed cost.
E)firm fails to minimize average fixed costs.

Question

Quizplus · Accepted Answer

The long-run output level for a monopolistically competitive firm occurs at the point where average total cost is falling. This is because the firm is producing at a level of output where it is not yet efficient. If the firm were to produce at a higher level of output, it would be able to spread its fixed costs over a larger number of units, which would reduce average fixed costs.

In the Long Run, a Monopolistically Competitive Firm Produces with Excess