Answer: The market for candy bars has excess capacity. This is because firms in a monopolistically competitive market do not produce at the minimum point on their average total cost curve, unlike firms in a perfectly competitive market. The monopolistically competitive firms produce at a level below the efficient scale of production, as can be seen in the following figure.

The firm in the figure above does not increase production up to the level associated with the minimum point on the ATC curve, QMᵢn, because it would then need to cut the price it charges for its goods, resulting in lower profits. Firms in a perfectly competitive market charge a price equal to the marginal cost of production and produce at the minimum point on the average total cost curve, as shown in the figure below.

-Refer to the figure above.This firm is ________.
A) at its long-run equilibrium and makes positive profit
B) at its long-run equilibrium and makes zero profit
C) not at its long-run equilibrium and makes positive profit
D) not at its long-run equilibrium and makes negative profit

Collusion Occurs When Firms ________

Multiple Choice

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