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