When a firm has constrained capacity as opposed to surplus capacity, opportunity costs will be:
A)lower
B)the same
C)greater
D)variable

Question

Quizplus · Accepted Answer

When a firm has constrained capacity, it means that they do not have enough resources to meet all demands. Therefore, the opportunity costs of choosing one course of action over another will be greater because the firm has to sacrifice other opportunities to pursue the chosen one. On the other hand, a firm with surplus capacity has more resources than it needs, and the opportunity cost of choosing one course of action over another will be lower because the firm can easily switch between activities without sacrificing any significant opportunity.

When a Firm Has Constrained Capacity as Opposed to Surplus