Which of the following best describes the idea of excess capacity in monopolistic competition?
A)Firms produce more output than is socially desirable.
B)The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve.
C)Due to product differentiation,firms choose output levels at which P ATC.
D)Firms keep some surplus output on hand in case there is a shift in demand for their product.
E)The collective output of all firms in the market typically exceeds the quantity demanded.

Question

Which of the following best describes the idea of excess capacity in monopolistic competition?
A)Firms produce more output than is socially desirable.
B)The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve.
C)Due to product differentiation,firms choose output levels at which P > ATC.
D)Firms keep some surplus output on hand in case there is a shift in demand for their product.
E)The collective output of all firms in the market typically exceeds the quantity demanded.

Quizplus · Accepted Answer

In monopolistic competition, firms produce at a level where average total cost (ATC) is not minimized, leading to excess capacity, meaning they produce less than the output at the minimum point of the ATC curve.

Which of the Following Best Describes the Idea of Excess