Excess capacity results from a
A)downward-sloping demand curve and a U-shaped ATC curve.
B)downward-sloping demand curve and no fixed costs.
C)horizontal demand curve and an upward-sloping marginal cost curve.
D)perfectly inelastic demand curve and a downward-sloping ATC curve.
E)none of the above

Question

Quizplus · Accepted Answer

Excess capacity typically occurs in monopolistic competition where firms face a downward-sloping demand curve and have a U-shaped average total cost (ATC) curve. This leads to firms producing below their minimum efficient scale, resulting in excess capacity.

Excess Capacity Results from a