APFIVE Monopolistic Competition and Minimum Efficient Scale
In the context of a monopolistic competition model, why would a firm choose to not produce at the minimum efficient scale (MES) of its Long Run cost curve?
A
Producing below MES leads to lower costs due to economies of scale which increase economic profits in the long run.
B
Firms opt for higher output levels to avoid price wars which would undermine the long-term durability of the market structure.
C
High barriers to entry prevent new firms from entering, thereby allowing existing firms to retain high economic profits even beneath MES.
D
By not producing at MES, the firm maintains excess capacity allowing for greater product differentiation and brand loyalty among consumers.
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