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In the realm of *Intermediate Microeconomics II*, monopolistic competition is a market structure characterized by a large number of firms producing differentiated products. Each firm has some degree of market power, enabling it to influence the price of its product. However, because there are many close substitutes, this power is limited. The concept of *excess capacity* arises when firms do not produce at the level of output that minimizes their average total cost (ATC). This is a significant characteristic of monopolistic competition and can be understood by examining how equilibrium is established in both the short run and long run. In the short run, firms under monopolistic competition behave like monopolies due to product differentiation. They face a downward-sloping demand curve, allowing them to set prices above marginal cost (MC). A firm maximizes its profit by producing the quantity where marginal revenue (MR) equals marginal cost. At this point, the price is determined by the demand curve. If ________ ________ ___ _______ __________ __________ _________ _______ ____ _______.
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