If a monopolistically competitive firm has excess capacity,
A) it has exhausted all economies of scale.
B) it is producing beyond the minimum efficient scale.
C) it is experiences diseconomies of scale.
D) it produces an output rate that places it on the negatively sloped portion of its average total cost curve.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have excess capacity because they produce less than the output level that minimizes average total cost, which means they operate on the downward-sloping portion of the ATC curve.

If a Monopolistically Competitive Firm Has Excess Capacity