Draw a precise diagram of long-run equilibrium in Edward Chamberlin's model of monopolistic competition. The diagram should illustrate the Excess Capacity Theorem, wherein a firm attains equilibrium at a point of tangency between the demand curve (AR curve) and the long-run AC curve, but with positive excess capacity. What is the relationship between own price-elasticity of demand for the close substitutes in this model and the extent of excess capacity ?

Draw a precise diagram of long-run equilibrium in Edward Chamberlin's model of monopolistic competition. The diagram should illustrate the Excess Capacity Theorem, wherein a firm attains equilibrium at a point of tangency between the demand curve (AR curve) and the long-run AC curve, but with positive excess capacity. What is the relationship between own price-elasticity of demand for the close substitutes in this model and the extent of excess capacity ?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter14: Monopolistic Competition And Product Differentiation

Section: Chapter Questions

Problem 10P

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