Ch.14 Monopolistic Competition

When a firm has excess capacity it produces a smaller

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Unformatted text preview: capacity, it produces a smaller output than that which minimizes average total cost. This means consumers pay a price exceeding minimum average total cost. Excess Capacity Excess 180 MC ATC 160 145 Price Excess capacity Profit120 maximizing output 0 Capacity output MR D 50 100 150 Quantity Efficiency and Product Innovation Is product innovation an efficient activity? There are two views: – Improved products that bring great benefits to the consumer. – Many so-called improvements amount to little more than changing the appearance of a product. Monopolistic Competition Mon...
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