In Contrast with Perfect Competition, Excess Capacity Characterizes Monopolistic Competition

question 249

Multiple Choice

In contrast with perfect competition, excess capacity characterizes monopolistic competition.Excess capacity is due to which of the following?

• A)Monopolistically competitive firms produce at the minimum point on their average total cost curves.
• B)Monopolistically competitive firms face downward-sloping demand curves. In the long run, firms produce where their demand curves are tangent to their long-run average total cost curves.
• C)Monopolistically competitive firms produce where marginal revenue is equal to marginal cost.
• D)Monopolistically competitive markets have low barriers to entry.

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Definitions:

Cost of Capital

The cost of capital is the rate of return a company must earn on its investments to maintain its market value and attract funds, including the cost of equity and debt.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets, weighted according to the proportion of equity and debt in the company's capital structure.

Cost of Equity Financing

This represents the return a company must offer investors to entice investment, effectively the cost of new equity capital.

Required Rate of Return

The least percentage of yearly return needed to entice entities or individuals to invest in a particular project or security.