Exhibit 14-4 The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4.The extent of excess capacity of this firm is:

Question

Exhibit 14-4 The following diagram depicts firms in monopolistically competitive markets.  Refer to Exhibit 14-4.The extent of excess capacity of this firm is:

Quizplus · Accepted Answer

Excess capacity refers to the amount that a firm's production capacity exceeds its actual output. In the diagram, the firm's minimum efficient scale (MES) is where its average total cost (ATC) is at its minimum point. The firm is currently producing at point A, which is below its MES. Therefore, the extent of excess capacity of this firm is the difference between its output at point A and its output at point B, where ATC is at its minimum. From the diagram, we can see that the difference in output between these two points is approximately 4,000 pairs of blue jeans.

Exhibit 14-4 the Following Diagram Depicts Firms in Monopolistically Competitive