For a monopolistically competitive firm,excess capacity is the difference between the equilibrium level of output and the level of output where:
A)marginal cost is minimum.
B)average total cost is minimum.
C)marginal revenue is maximum.
D)total revenue is maximum.

Question

Quizplus · Accepted Answer

Excess capacity for a monopolistically competitive firm occurs when the firm produces at a level of output where its average total cost is minimum, but its price exceeds its marginal cost. This means that the firm is not using its resources efficiently and could potentially produce more output at a lower cost. When the firm produces at the level of output where marginal cost is minimum, it is operating at its efficient scale and would not have excess capacity. Similarly, producing at the level of output where marginal revenue is maximum or where total revenue is maximum may not necessarily result in excess capacity.

For a Monopolistically Competitive Firm,excess Capacity Is the Difference Between