If a firm has excess capacity, then
A)the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales.
B)the firm is not producing its minimum efficient scale of output.
C)the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity.
D)the firm's quantity supplied exceeds its quantity demanded.

Question

Quizplus · Accepted Answer

Excess capacity occurs when a firm is not operating at its minimum efficient scale, which means it has the ability to produce more output without experiencing an increase in long-run average cost. This can result in underutilization of resources and inefficiency in production. Choices A and C are incorrect because they do not accurately describe excess capacity, and choice D is a result of excess capacity but not a definition of it.

If a Firm Has Excess Capacity, Then