CA Foundation P4 · Chapter 4 · Question 11 of 15
In long-run equilibrium under monopolistic competition, the firm:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Earns normal profit and operates with excess capacity
Explanation
Free entry drives profits to normal, so the downward-sloping demand curve becomes tangent to LAC. Because the tangency is on the falling part of LAC, output is less than the cost-minimising level - this unused capacity is called excess capacity.
More Price Determination in Different Markets MCQs
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