A monopolistically competitive firm ________ have excess capacity because its ________.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm will have excess capacity because its demand curve is downward sloping. This means that the firm is able to sell less than its maximum capacity at a higher price, which allows it to have excess capacity. If the demand were perfectly elastic, the firm would not be able to charge a price above its marginal cost and would have to produce at full capacity. Additionally, if the demand were perfectly inelastic, the firm would be able to charge a much higher price and would also have to produce at full capacity. Therefore, the downward sloping demand curve of a monopolistically competitive firm allows it to have excess capacity.

A Monopolistically Competitive Firm ________ Have Excess Capacity Because Its