Excess capacity occurs whenever a firm is operating at an output level below where average total cost is minimised.

Question

Quizplus · Accepted Answer

This is because average total cost is minimised when a firm is operating at full capacity or producing at their maximum efficient output level. When a firm produces below this level, they are not fully utilising their resources and as a result, their average total cost will be higher.

Excess Capacity Occurs Whenever a Firm Is Operating at an Output