Author Question: For a firm in monopolistic competition, define efficient scale and excess capacity. Briefly explain ... (Read 63 times)

elizabeth18 · **on:** Jun 29, 2018

For a firm in monopolistic competition, define efficient scale and excess capacity. Briefly explain each.

What will be an ideal response?

Question 2

Potential GDP is the level of output produced when the unemployment rate is

A) equal to the natural unemployment rate.
B) greater than the natural unemployment rate.
C) less than the natural unemployment rate.
D) zero.
E) made up of only cyclical unemployment.

ky860224 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The efficient scale is the quantity produced when average total cost is at its minimum. In the long run, a firm in monopolistic competition operates below the efficient scale when maximizing profits. The difference between the efficient scale and the quantity produced by a firm is the excess capacity. Because the firm is not producing at the efficient scale, its average total cost is higher than if it produced at the efficient scale.

Answer to Question 2

A