Which of the following best describes the idea of excess capacity in monopolistic competition?

Question

Quizplus · Accepted Answer

Excess capacity in monopolistic competition refers to the situation where firms produce less output than would occur at the minimum point on their average total cost (ATC) curve. This is because firms in monopolistic competition have some market power due to product differentiation, allowing them to charge a price higher than their marginal cost (MC). However, this means that they are not producing at the lowest possible cost, resulting in excess capacity.

Which of the Following Best Describes the Idea of Excess