In the long run a perfectly competitive firm operates ____ and a monopolistically competitive firm operates ____.
A) at the efficient scale; with excess capacity
B) at the efficient scale; at the efficient scale
C) with excess capacity; with excess capacity
D) with excess capacity; at the efficient scale

Question

Quizplus · Accepted Answer

In the long run, a perfectly competitive firm operates at the efficient scale, producing the quantity where its average total cost is minimized. On the other hand, a monopolistically competitive firm operates with excess capacity, producing at a quantity lower than the one that minimizes its average total cost. This is due to the fact that it faces downward sloping demand and must differentiate its product to some degree in order to have pricing power.

In the Long Run a Perfectly Competitive Firm Operates ____