The excess-capacity theorem predicts that
A) when price-taking firms maximize their profits by setting price equal to marginal cost,each firm operates with some excess capacity.
B) long-run equilibrium in a monopolistically competitive industry occurs with all firms producing at a lower output level than that which minimizes average total costs.
C) profit-maximizing firms will always choose to operate with some degree of excess capacity,in order to be flexible in the face of shifts in demand.
D) monopolistic firms will achieve positive economic profits by restricting output below the economically efficient level at which average total costs are minimized.
E) all firms in a perfectly competitive industry will produce at a lower output level than that which minimizes average total costs.
Correct Answer:
Verified
