Answer to Question #225901 in Microeconomics for Devil

Question

Explain the short run and longrun equilibrium under Monopolistic competition market & show 

excess capacity under monopolistic competition market.

Answer 1

Short run equilibrium under monopolistic competition market, a firm maximizes profits and produces quantities where marginal revenue equals marginal cost.

In long run equilibrium firms can enter the market, new firms will be allured to these profit opportunities.

Excess capacity occurs when a firm produces below its minimum effective scale.

LAC- long run average cost

LMC-long run marginal cost

E-equilibrium point