The Excess-Capacity Theorem Predicts That

question 83

Multiple Choice

The excess-capacity theorem predicts that

• A)when price-taking firms maximize their profits by setting price equal to marginal cost,each firm operates with some excess capacity.
• B)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.
• 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)monopolistic firms will achieve positive economic profits by restricting output below the economically efficient level at which average total costs are minimized.
• E)all firms in a perfectly competitive industry will produce at a lower output level than that which minimizes average total costs.