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When a firm operates with excess capacity, it must be in a monopolistically competitive market.
Excess Capacity
A scenario where a firm's actual production is less than its maximum potential output, often leading to inefficiencies and higher costs.
Monopolistically Competitive
Describes a market structure where many firms sell products that are similar but not identical, allowing for competition based on factors other than just price, such as brand and quality.
- Elucidate the notion of surplus production capability and its consequences for companies within markets characterized by monopolistic competition.
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Learning Objectives
- Elucidate the notion of surplus production capability and its consequences for companies within markets characterized by monopolistic competition.
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