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Excess capacity refers to the: a
Excess capacity refers to the:
a. amount by which actual production falls short of the minimum ATC output.
b. fact that entry barriers artificially reduce the number of firms in an industry.
c. differential between price and marginal costs that characterizes monopolistically competitive firms.
d. fact that most monopolistically competitive firms encounter diseconomies of scale.
Expert Solution
The correct answer is A) amount which actual production falls short of the minimum ATC output.
Excess capacity refers to the situation when a firm can produce more number of goods and services with given resources until the average total cost is minimized. Thus, excess capacity refers to the amount by which actual production falls short of the minimum ATC output.
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