Suppose the federal finance minister wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale.If this law were to pass and be enforced,what would we expect would happen to monopolistically competitive firms

Question

Quizplus · Accepted Answer

Monopolistically competitive firms typically operate with excess capacity, meaning they do not produce at the minimum point of their average total cost curve (efficient scale). If forced to operate at efficient scale, they would likely incur losses due to reduced market power and inability to cover costs, thus requiring subsidies to remain viable.

Suppose the Federal Finance Minister Wants to Pass a Law