In the long run, a firm in monopolistic competition ________ excess capacity and a firm in perfect competition ________ excess capacity.
A) has; does not have
B) does not have; does not have
C) has; has
D) does not have; has
E) might have; might have

Question

Quizplus · Accepted Answer

A firm in monopolistic competition has excess capacity because they differentiate their product, which means they are not producing at the minimum average cost. On the other hand, a firm in perfect competition does not have excess capacity because they are producing at the minimum average cost, which is the same for all firms in the industry.

In the Long Run, a Firm in Monopolistic Competition ________