Figure 16-8
-Refer to Figure 16-8. Assume a monopolistically competitive firm is currently producing the profit-maximizing level of output. Which of the following represents the excess capacity of this firm?

Question

Figure 16-8  ​
-Refer to Figure 16-8. Assume a monopolistically competitive firm is currently producing the profit-maximizing level of output. Which of the following represents the excess capacity of this firm?

Quizplus · Accepted Answer

Excess capacity in a monopolistically competitive firm is the difference between the quantity of output at the minimum average total cost and the profit-maximizing quantity. LM represents this difference, indicating the firm could produce more at a lower average cost but chooses not to in order to maximize profits.

Figure 16-8 ​

Figure 16-8