The excess capacity theorem states that
A)society is worse off with fewer monopolistic competitors.
B)costs of production under monopolistic competition can be lowered by reducing the number of producers.
C)lack of excess capacity leads to shortages during periods of unexpected growth in demand for goods produced by monopolistic competition.
D)there is too much choice in our economy.

Question

Quizplus · Accepted Answer

The excess capacity theorem suggests that monopolistic competition results in an inefficient allocation of resources, where firms operate below their capacity to produce at minimum average cost. Reducing the number of producers can lower these costs by allowing remaining firms to achieve economies of scale.

The Excess Capacity Theorem States That