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Figure: Profit Maximization in Monopolistic Competition
-(Figure: Profit Maximization in Monopolistic Competition) Use Figure: Profit Maximization in Monopolistic Competition.In panel (B) of the figure,the profit-maximizing price is P₂ and the ATC curve is tangent to the new demand curve.The portion of the ATC that lies to the right of the tangency and continues down to the intersection of MC with ATC indicates:

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Figure: Profit Maximization in Monopolistic Competition

-(Figure: Profit Maximization in Monopolistic Competition) Use Figure: Profit Maximization in Monopolistic Competition.In panel (B) of the figure,the profit-maximizing price is P₂ and the ATC curve is tangent to the new demand curve.The portion of the ATC that lies to the right of the tangency and continues down to the intersection of MC with ATC indicates:

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The portion of the ATC curve that lies to the right of the tangency point and continues down to the intersection of MC with ATC indicates excess capacity. This means the firm is not producing at its minimum ATC, which is a characteristic of monopolistic competition due to the presence of differentiated products and the lack of price competition leading to inefficiencies such as excess capacity.

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