The excess capacity in monopolistic competition may be viewed as:
A)the cost of product diversity.
B)efficient.
C)the reason P = MR = MC in monopolistic competition.
D)the advantage of monopolistic competition over monopoly.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products to create variety for consumers. However, this results in excess capacity because firms are producing below their efficient scale. This excess capacity can be viewed as the cost of product diversity.

The Excess Capacity in Monopolistic Competition May Be Viewed As