Since a firm in a monopolistically competitive market faces a
A)downward-sloping demand curve, it will always operate with excess capacity.
B)downward-sloping demand curve, it will always operate at its efficient scale.
C)perfectly elastic demand curve, it will always operate with excess capacity.
D)perfectly inelastic demand curve, it will always operate at its efficient scale.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms face a downward-sloping but relatively elastic demand curve because they produce differentiated products. This means that they cannot charge a price too much higher than their competitors without losing customers, which results in excess capacity. Firms will not operate at their efficient scale because they do not have the economies of scale enjoyed by monopolies or oligopolies.

Since a Firm in a Monopolistically Competitive Market Faces a