A profit-maximizing,monopolistically competitive firm always operates:
A) at the minimum of average total cost.
B) at the point where demand is unit elastic.
C) with excess capacity.
D) at an economically efficient scale.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm will operate with excess capacity because it seeks to differentiate its product from competitors, which leads to a less efficient use of resources. Operating with excess capacity allows the firm to quickly adjust to changes in demand by increasing production without experiencing significant increases in costs. Therefore, the firm does not operate at the minimum average total cost or the economically efficient scale, and it does not require demand to be unit elastic.

A Profit-Maximizing,monopolistically Competitive Firm Always Operates