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zitze zitze
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A year ago

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.

Short description: A graph plots quantity against price or cost per unit in dollars. Long description: The horizontal axis represents quantity. The vertical axis represents the price or cost per unit in dollars. The graph plots two lines and two curves. The curve, LRAC passes through the following points: (q subscript 0, 20) and (q subscript 1, 17). The curve, MC passes through the following points: (q subscript 0, 7) and (q subscript 1, 13). Line, D passes through the following points: (q subscript 0, 20) and (q subscript 1, 13). The line, MR passes through the following points: (q subscript 0, 7).

FIGURE 11-5

Refer to Figure 11-5. How is the excess-capacity theorem demonstrated in this diagram?



▸ In long-run equilibrium, the firm is earning positive profits, but has unexploited economies of scale.

▸ In long-run equilibrium, this firm has excess capacity because they are selling output at a price below their LRAC.

▸ The long-run equilibrium occurs where the firm is producing output at q0, which is less than that corresponding to the lowest point on its LRAC curve.

▸ The long-run equilibrium occurs where the firm is producing output at q1, which is the same as for a perfectly competitive industry.

▸ The short-run equilibrium occurs where the firm is producing output at q0, which is less than that corresponding to the lowest point on its LRAC curve.
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Microeconomics

Microeconomics


Edition: 17th
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ggianolaggianola
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zitze Author
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this is exactly what I needed
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Brilliant ツ
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