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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

“Excess capacity is the price we pay for product differentiation.” Evaluate this statement in terms of monopolistic competition.

To determine

Evaluate the statement “excess capacity is the price pay for product differentiation” in terms of monopolistic competition.

Explanation

The excess capacity of production in the monopolistic competition occurs where there is a gap between the profit-maximizing output and minimum average total cost (ATC) output. According to the excess capacity theorem, in the long-run, the monopolistic competitor produces output that is s...

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