The Excess-Capacity Theorem Predicts That

question 83

Multiple Choice

The excess-capacity theorem predicts that

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

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Definitions:

Dividend Income

Earnings received from owning shares of a company that pays dividends.

Shares

Shares represent portions of equity in a company or an investment, entitling holders to a proportional share of any distributed profits, known as dividends, when they are announced.

Capital Gain

The profit from the sale of a capital asset, such as stocks or real estate, where the sale price exceeds the purchase price.

Dividends

Payments made by a corporation to its shareholder members, often derived from the company's profits.