The Excess- Capacity Theorem Predicts

question 86

Multiple Choice

The excess- capacity theorem predicts

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

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Definitions:

Divergent Plate Boundaries

Places on Earth's surface where tectonic plates move away from each other, leading to the formation of new crust as magma rises and solidifies.

Continental Rifts

Large-scale geological features that form when tectonic plates in the Earth's crust move apart, leading to the formation of new ocean basins or rift valleys.

Continental Crust

The thick part of the Earth's crust that forms the continents and continental shelves, characterized by a composition distinct from that of the oceanic crust.

Hot Conditions

Environmental or atmospheric situations characterized by high temperatures, often affecting living conditions and climate patterns.