Which of the following real-world situations is the result of excess capacity in a monopolistically competitive market?
A)A factory producing women's clothing produces more than it can sell during a season.
B)Gas stations with infrequently used pumps are located at all four corners of an intersection.
C)A retail auto tire store orders too much inventory.
D)Monopolistically competitive firms do not exist in the real world.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms often have excess capacity because they produce at a level where average total costs are not minimized. Gas stations at all four corners of an intersection illustrate this as they have more capacity than needed to meet demand, a common trait in such markets.

Which of the Following Real-World Situations Is the Result of Excess