In the long run,a firm in monopolistic competition ________ excess capacity and a firm in perfect competition ________ excess capacity.
A) has; has
B) has; does not have
C) does not have; has
D) does not have; does not have
E) might have; might have

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have excess capacity because they produce at a quantity where the marginal cost is above the average cost. This is because they have some power to set prices above the marginal cost, but not enough to fully eliminate competition. 
In perfect competition, firms operate at their efficient scale and do not have excess capacity because they produce at the minimum point of the average cost curve. Therefore, the correct choice is B.

In the Long Run,a Firm in Monopolistic Competition ________ Excess