The Diagram Below Shows Selected Cost and Revenue Curves for a Firm

question 46

Multiple Choice

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.
FIGURE 11-4
-Refer to Figure 11-4.How is the excess-capacity theorem demonstrated in this diagram?

• A)The short-run equilibrium occurs where the firm is producing output at q0,which is less than that corresponding to the lowest point on its LRAC curve.
• B)The long-run equilibrium occurs where the firm is producing output at q1,which is the same as for a perfectly competitive industry.
• C)In long-run equilibrium the firm is earning positive profits,but has unexploited economies of scale.
• D)In long-run equilibrium,this firm has excess capacity because they are selling output at a price below their LRAC.
• E)The long-run equilibrium occurs where the firm is producing output at q0,which is less than that corresponding to the lowest point on its LRAC curve.

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