Asked by Cierra Jacobson on Apr 24, 2024
Verified
A monopolistically competitive firm has excess capacity in the long run.This means that it:
A) produces less than the output at which average total costs are minimized.
B) produces less than the output at which price and marginal cost are equal.
C) could produce more by moving to a larger plant.
D) doesn't maximize profits.
Excess Capacity
A situation where a firm is producing at a lower scale of output than it has been designed for, leading to inefficiencies.
Average Total Costs
The total costs of production divided by the number of units produced, representing the cost per unit.
- Clarify the idea of excess capacity in the context of monopolistically competitive markets.
Verified Answer
ZK
Zybrea KnightMay 02, 2024
Final Answer :
A
Explanation :
In the long run, a monopolistically competitive firm produces at a point where price is greater than the marginal cost, but less than the average total cost. This means it has excess capacity and could potentially produce more without increasing its cost per unit. Therefore, it produces less than the output at which average total costs are minimized.
Learning Objectives
- Clarify the idea of excess capacity in the context of monopolistically competitive markets.
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