If a monopolist has excess capacity, it could increase output and its average costs would be falling.

    The firm whose data are depicted to the right is maximizing profits by producing where MR = MC. It is producing a level of output well below its capacity. This firm's production facilities were designed to produce the level of output marked QC. The firm isn't doing anything wrong, it just may be that market predictions were overly optimistic when it designed its facility, or it may have intentionally built excess capacity as a barrier to entry.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved