Suppose that an economy wants to eliminate the resource waste associated with excess capacity in monopolistically competitive markets.Which of the following would achieve this goal?

Question

Quizplus · Accepted Answer

If firms are required to set price equal to marginal cost, they won't be able to charge higher prices to cover their excess capacity costs. This would incentivize them to only produce the amount of goods that they're able to sell at a profit, which would eliminate the resource waste associated with excess capacity. Allowing firms to establish significant barriers to entry or encouraging them to produce less output wouldn't directly address the issue of excess capacity.

Suppose That an Economy Wants to Eliminate the Resource Waste