When the profit-maximizing level of output is less than the output associated with the minimum possible average total cost of production,a firm is said to have:
A)economic profits.
B)excess capacity.
C)advertising.
D)excess production.

Question

Quizplus · Accepted Answer

Excess capacity means that a firm is producing at a level below its minimum efficient scale, where it can produce at the lowest possible average total cost. This indicates that the firm has the ability to produce more but is not doing so, and therefore has excess or spare capacity. This is a common occurrence for firms in monopolistic competition or oligopoly markets.

When the Profit-Maximizing Level of Output Is Less Than the Output