Author Question: What is excess capacity? What industry has excess capacity in the long run: perfect competition or ... (Read 209 times)

Deast7027 · **on:** Jun 29, 2018

What is excess capacity? What industry has excess capacity in the long run: perfect competition or monopolistic competition?

What will be an ideal response?

Question 2

The substitution effect from a fall in the price of a gallon of gasoline is shown in the above figure by the movement from

A) point A to point C.
B) point A to point B.
C) point B to point C.
D) point A to point B and then to point C.

missalyssa26 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The efficient scale of output is the level that minimizes the average total cost. Excess capacity occurs if the firm produces less than the efficient scale. In this case, the firm could boost its output and lower its average total cost. Firms in monopolistic competition have excess capacity. Firms in perfect competition produce at the minimum of the average total cost. They produce at the efficient scale of output and so do not have excess capacity.

Answer to Question 2

B