Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently producing where its average total cost is minimized. In the long run we would expect Joe's output to
A)decrease and average total cost to increase.
B)decrease and average total cost to decrease.
C)remain unchanged as Joe's is doing the best it can.
D)increase and average total costs to decrease.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms tend to produce less than the output that minimizes average total cost in the long run due to the presence of excess capacity. Therefore, Joe's output would decrease and average total cost would increase as the market adjusts.

Joe's Juice Shop Operates in a Monopolistically Competitive Market