The excess capacity theorem states that
a. society is worse off with fewer monopolistic competitors.
b. costs of production under monopolistic competition can be lowered by reducing the number of producers.
c. lack of excess capacity leads to shortages during periods of unexpected growth in demand for goods produced by monopolistic competition.
d. there is too much choice in our economy.
b
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The above figure shows the market for rice in Japan. SDomestic represents the domestic supply curve, and Sworld represents the world supply curve. A $1 per unit tariff has the same effect on producer and consumer surplus as a quota of
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