In the long run,a monopolistically competitive firm will produce too little output to minimize average cost.Therefore,it will have

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some degree of market power, but they face competition from similar products produced by other firms. As a result, they try to differentiate their products to attract customers. However, this often leads to excess capacity, which means that the firm's production is below the level that would minimize its average cost. In other words, the firm could produce more output and lower its average cost, but it chooses not to do so in order to maintain its differentiation. This results in a situation where there is unused capacity in the firm, which is known as excess capacity. Therefore, the correct answer is E, excess capacity.

In the Long Run,a Monopolistically Competitive Firm Will Produce Too