In the long run, a monopolistically competitive firm operates with excess capacity and excess costs.

Question

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In monopolistic competition, firms have some degree of market power and can charge prices higher than their marginal cost in the short run. However, in the long run, other firms can enter the market and offer similar products, driving down the demand and prices for the original firm. As a result, the original firm operates with excess capacity (not utilizing all of their resources) and excess costs (due to inefficient production levels).

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