1. What happens to efficiency and capacity when monopolistically competitive firms produce where their ATC meets...

1. What happens to efficiency and capacity when monopolistically competitive firms produce where their ATC meets the demand curve? (Name and explain the specific concepts.)

IN YOUR OWN WORDS PLEASE.

Solutions

Expert Solution

When a monopoly firm produces at a point where the AC curve meets its demand curve they earn no supernormal profit. At that pint hey just break even.

The demand curve of the monopoly firm is downward sloping that means they have a certain control over their product and they are not the price takers in the market. Because of the downward sloping curve even when they produce at the point where the curves meet the monopoly will still have excess capacity lying with them and will not reach the efficient point where the perfect competition reach by producing at the lowest point of the AC curve.

Here, in this graph, the firm is producing at the point where the AC curve meets the demand curve here its profit is zero only breaking even but the excess capacity still remains because of the downward sloping demand curve.

Rahul Sunny answered 1 year ago

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