-(Exhibit: Profit Maximization in Monopolistic Competition) In Panel (b), the profit-maximizing price is P₂ and the ATC curve is tangent to the new demand curve. The portion of the ATC that lies to the right of the tangency and continues down to the intersection of MC with ATC indicates _______ , because in the long run in _______ the price would be equal to _______ . A) unused capacity; oligopoly; MC = minimum ATC B) excess capacity; perfect competition; MC = minimum ATC C) under-utilization; monopoly; MR = MC D) excess capacity; perfect competition; MC minimum ATC

Question

-(Exhibit: Profit Maximization in Monopolistic Competition) In Panel (b), the profit-maximizing price is P₂ and the ATC curve is tangent to the new demand curve. The portion of the ATC that lies to the right of the tangency and continues down to the intersection of MC with ATC indicates _______ , because in the long run in _______ the price would be equal to _______ . A) unused capacity; oligopoly; MC = minimum ATC B) excess capacity; perfect competition; MC = minimum ATC C) under-utilization; monopoly; MR = MC D) excess capacity; perfect competition; MC > minimum ATC

Quizplus · Accepted Answer

Excess capacity refers to the situation where a firm is not producing at its minimum average total cost (ATC), which is common in monopolistic competition. In the long run in perfect competition, price equals the minimum ATC because firms enter and exit the market until there are no economic profits, and the price adjusts to where P = MC = minimum ATC.

-(Exhibit: Profit Maximization in Monopolistic Competition) in Panel (B), the Profit-Maximizing