Use the figure below to answer the following question.

Figure 14.2.7
-Refer to Figure 14.2.7. The figure shows the demand, marginal revenue, and cost curves for a monopolistically competitive firm in the long run. The firm has excess capacity of

Question

Use the figure below to answer the following question.
  
Figure 14.2.7
-Refer to Figure 14.2.7. The figure shows the demand, marginal revenue, and cost curves for a monopolistically competitive firm in the long run. The firm has excess capacity of

Quizplus · Accepted Answer

Excess capacity occurs when a firm produces at a lower output level than what would minimize its average total cost. In this case, the minimum point of the average total cost curve occurs at an output level of 12 units, whereas the firm is producing at an output level of 20 units where the demand and marginal revenue curves intersect. Therefore, the excess capacity is 20-12=8 units, which is the amount by which the firm could reduce its output without increasing its average total cost.

Use the Figure Below to Answer the Following Question