According to the excess capacity theorem, if every firm under monopolistic competition expanded its output,
A)cost per unit of output would rise.
B)social benefits would increase.
C)cost per unit of output would decrease.
D)MC and AC would remain unchanged.

Question

Quizplus · Accepted Answer

The excess capacity theorem suggests that under monopolistic competition, firms operate below their most efficient scale. If every firm expanded its output, they would move closer to their most efficient scale, thus decreasing the cost per unit of output due to economies of scale.

According to the Excess Capacity Theorem, If Every Firm Under