Multiple choice

Under which market condition, though the firms earn normal profits in the long run, there is always excess capacity with them?

  1. Perfect competition

  2. Monopoly

  3. Oligopoly

  4. Monoplistic competition

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Monopolistic competition has excess capacity because firms produce at less than optimum scale in long run equilibrium (tangency of AR and AC occurs on downward sloping portion). Perfect competition has zero excess capacity. Monopoly and oligopoly don't fit the description of normal profits with excess capacity.