The excess capacity theorem implies that
A)consumers would be better off if some monopolistically competitive firms left their markets.
B)consumers would be better off with more standardization of products.
C)monopolistic competition benefits society by eliminating excess capacity in production.
D)monopolistic competition wastes some of society's resources but the elimination of this waste does not necessarily benefit consumers.

Question

Quizplus · Accepted Answer

The excess capacity theorem suggests that monopolistically competitive firms do not produce at the lowest point on their average cost curves, leading to inefficiencies or "waste" of resources. However, this does not necessarily mean eliminating such waste would benefit consumers, as the variety and innovation in monopolistically competitive markets can provide value that might be lost with more efficient, standardized production.

The Excess Capacity Theorem Implies That