What is the root cause of excess capacity in a monopolistically competitive industry?

Name: What is the root cause of excess capacity in a monopolistically competitive industry?
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Question

Quizplus · Accepted Answer

Product differentiation in monopolistic competition leads to excess capacity because firms produce less than the output level that minimizes average total cost, as they focus on differentiating their products rather than achieving economies of scale.

What Is the Root Cause of Excess Capacity in a Monopolistically