When does excess capacity in an industry occur?

Question

Quizplus · Accepted Answer

Excess capacity occurs when production occurs to the left of the minimum point of the average total cost curve. This means that firms are producing at a level lower than the most efficient output level, resulting in unused or excess capacity. When firms have excess capacity, they are producing below their potential, which causes them to have lower profits than they would if they were operating at their most efficient level.

When Does Excess Capacity in an Industry Occur