Why do firms in monopolistic competition operate with excess capacity?
What will be an ideal response?
A firm's capacity output is the output at which average total cost is at its minimum. In monopolistic competition in the long run, MR = MC and P = ATC. At the long run equilibrium, it is the case that MC < ATC, which means that ATC is falling in this range and so production occurs at an output level that is less than capacity output.
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Answer the following statement true (T) or false (F)
The opportunity cost of any choice:
a. is the value of all other alternatives. b. includes only explicit costs and not implicit costs. c. is the value of the next best alternative. d. includes only implicit costs and not explicit costs.