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

question 32

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 ,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 ,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 ,which is less than that corresponding to the lowest point on its LRAC curve.

---

Definitions:

Relative Purchasing Power Parity

A theory that states the rate of appreciation or depreciation of one currency relative to another will equal the rate of inflation differentials between the two countries.

Expected Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is expected to fall.

Absolute Purchasing Power Parity

A theory that suggests that the price of goods in different countries should be equal when measured in a common currency.

Exchange Rate

The price of one country's currency in terms of another currency or currencies.