Figure 9-A
The following diagram depicts firms in monopolistically competitive markets.
-Refer to Figure 9-A.The extent of excess capacity of this firm is:

Question

Figure 9-A
The following diagram depicts firms in monopolistically competitive markets. 
-Refer to Figure 9-A.The extent of excess capacity of this firm is:

Quizplus · Accepted Answer

The extent of excess capacity in a monopolistically competitive market is given by the difference between the quantity produced at minimum average total cost and the quantity produced at the profit-maximizing level of output. In this diagram, the firm is producing 7,000 pairs of blue jeans at the profit-maximizing level of output where marginal revenue (MR) equals marginal cost (MC). However, the firm could produce 11,000 pairs of blue jeans at minimum ATC. Therefore, the extent of excess capacity for this firm is 11,000 - 7,000 = 4,000 pairs of blue jeans.

Figure 9-A The Following Diagram Depicts Firms in Monopolistically Competitive Markets