The Excess- Capacity Theorem Predicts That

question 100

Multiple Choice

The excess- capacity theorem predicts that

• A)long- run equilibrium in a monopolistically competitive industry occurs with all firms producing at a lower output level than that which minimizes average total costs.
• B)when price- taking firms maximize their profits by setting price equal to marginal cost,each firm operates with some excess capacity.
• C)profit- maximizing firms will always choose to operate with some degree of excess capacity,in order to be flexible in the face of shifts in demand.
• D)all firms in a perfectly competitive industry will produce at a lower output level than that which minimizes average total costs.
• E)monopolistic firms will achieve positive economic profits by restricting output below the economically efficient level at which average total costs are minimized.

---

Definitions:

Fair Value

Fair value is the estimated market price of an asset or liability, reflecting the amount for which it could be exchanged or settled in a transaction between knowledgeable, willing parties under no compulsion.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate revenue and expenses to the appropriate period, ensuring accurate financial reporting.

Long-Term Investment

Investments held for an extended period, typically exceeding one year, such as stocks, bonds, or real estate, aiming for prolonged growth.

Fair Value

A valuation of an asset or liability determined by the price it would fetch if sold, or the cost to transfer it, in a smooth transaction among participants in the market.