Homework Answers
Answer: B, With excess capacity because they face downward sloping demand curve.
A monopolistic market is characterised by large number of buyer and seller selling products which are close subsitution. As they deal with differenciated but close substitutes , demand curve is downward sloping. when demand cuvve is downward sloping equilibrium happens to the left of minilinum point of LAC. firm produce optimum output when equilibrium quantity corresponding to the minimum point of LAC( long run average cost curve. In the figure given optimal output corresponds to104 units. In the monopoly competitoon Output corresponding to its MC=MR ie equilibrium output is 48. when firm produces equilibrium output, it does not minimize its average cost. It means that firm has not utilise its economies of scale.
According to chamberlin, excess capacity in monopoly is due to the product differenciation.And he does not admit the existence of excess capacity.He recognise it as socially ideal output.
Answer: 48 units.
The firm maximises profit or attain equilibrium when MC=MR. Here output corresponding to MC=MR is 48 units.
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