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3) The excess capacity theorem states that a monopolistic competitor will produce an output level smaller than the one that would minimize its unit costs.
3) The excess capacity theorem states that a monopolistic competitor
- will produce an output level smaller than the one that would minimize its unit costs.
- will produce an output level where MR > MC.
- generally does not attain long-run equilibrium, thus charges a higher price than it should.
- typically produces too much of a good at too low a quality.
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