When a firm has excess capacity it produces a smaller

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Unformatted text preview: cess 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 180 MC 160 145 Price Excess capacity Profit120 maximizing output 0 50 Capacity output ATC MR 100 D 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 P...
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