Murphy's Muffins sells banana nut muffins in an industry that is monopolistically competitive. The industry is currently in long-run equilibrium.

Which of the following terms describes the difference between the costminimizing quantity and the quantity that Murphy's Muffins actually produces?

Choose 1 answer:
(A) surplus quantity
B) deadweight loss
(c) allocative inefficiency
(D) excess capacity
(E) zero economic profits

Question

Murphy's Muffins sells banana nut muffins in an industry that is monopolistically competitive. The industry is currently in long-run equilibrium.

Which of the following terms describes the difference between the costminimizing quantity and the quantity that Murphy's Muffins actually produces?

Choose 1 answer:
(A) surplus quantity
B) deadweight loss
(c) allocative inefficiency
(D) excess capacity
(E) zero economic profits

Accepted Answer

∻Solution∻ ‖ a ⋮ Understanding Monopolistic Competition: In a monopolistically competitive market, firms have some market power due to product differentiation. However, in the long run, economic profits are zero due to the entry of new firms. ‖ ‖ b ⋮ Excess Capacity: Excess capacity refers to the situation where a firm produces at a quantity less than the minimum of the average total cost curve, which is the cost-minimizing quantity. ‖ ‖ c ⋮ Identifying the Correct Term: The difference between the cost-minimizing quantity and the actual quantity produced is known as excess capacity. This occurs because the firm is not producing at the lowest point on the average total cost curve. ‖ ∻Answer∻ ⚹ (D) excess capacity ⚹ ∻Key Concept∻ ⚹ Excess Capacity ⚹ ∻Explanation∻ ⚹ Excess capacity is the term that describes the difference between the cost-minimizing quantity and the quantity actually produced by a firm in a monopolistically competitive market in long-run equilibrium. ⚹◊What impact does monopolistic competition have on the level of allocative efficiency in the long run equilibrium?⍭ Generate me a similar question◊

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