AP MicroeconomicsMarket Structures
Excess Capacity
Excess capacity occurs when a firm produces less than the quantity that minimizes average total cost.
In monopolistic competition, firms produce at a point where demand is tangent to ATC but to the left of the minimum ATC, leading to underutilized resources. This results from product differentiation and the need to maintain some market power.
Formula / Example
Q < Q_min ATC
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Monopolistic Competition →
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Monopolistic Competition →
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