Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run equilibrium.

Name: Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run equilibrium.
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Question

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In monopolistically competitive markets, firms face excess capacity in the long run because they do not produce at minimum average total cost due to the downward-sloping demand curve they face, leading to less than optimal scale of production.

Excess Capacity Characterizes Firms in Monopolistically Competitive Markets, Even in Situations