Excess capacity is
A)an example of the inefficiencies of monopolistically competitive markets.
B)a short-run problem but not a long-run problem.
C)a characteristic of rising average total cost curves.
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

Excess capacity is a characteristic of monopolistically competitive markets where firms have the ability to produce more than the current level of output but choose not to, leading to inefficiencies. It is not a short-run problem but a long-run problem as firms continue to produce below their optimal capacity and cannot achieve economies of scale, leading to higher prices and lower output.

Excess Capacity Is