Chapter 67, Problem 3MCQ

To determine

To choose: from the given options the one that exists for a monopolistic competitor in the long run.

Answer to Problem 3MCQ

The correct option is B i.e. excess capacity.

Explanation of Solution

From the given options the one that exists for a monopolistic competitor, in the long run, is excess capacity i.e. under-utilization of the available resources. This means that in long run a monopolistically competitive firm usually ends up selecting a level of output that is less/below its minimum efficient scale which is presented in the figure below as point b.

So, in the case when the firm produces below its minimum efficient scale its available resources are not fully utilized i.e. under-utilization. In this scenario, the firm has the excess capacity as it can easily have an increase in production.

So, this excess capacity is one of the main social cost that a monopolistically competitive market structure face.