The Diagram Below Shows Demand and Cost Curves for a Monopolistically

question 2

Multiple Choice

The diagram below shows demand and cost curves for a monopolistically competitive firm. FIGURE 11- 3
-Refer to Figure 11- 3. Which of the following is a demonstration of the excess- capacity theorem?

• A) PL = LRAC with zero profits
• B) PL = MC with zero profits
• C) QL is less than QC
• D) LRAC at QL is not at its minimum.
• E) both C and D demonstrate the excess- capacity theorem

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Definitions:

Zero-Based

A budgeting method where all expenses must be justified for each new period, starting from a "zero base," without reference to previous budgets.

Incremental

Pertaining to an increase or addition, especially in a series of small, regular steps.

Depreciation

A method of allocating the cost of a tangible asset over its useful life.

Amortization

The process of spreading out a loan into a series of fixed payments over time, covering both principal and interest.