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

Question

Quizplus · Accepted Answer

Excess capacity refers to a situation where a firm is producing less than its minimum efficient scale of output. This means that the firm has idle resources that it could be using to produce more goods and services at a lower cost. Therefore, option B is the correct answer. Option A refers to an issue with advertising, while option C relates to the difference between the long-run and short-run average costs. Option D refers to a situation of oversupply, which may or may not be related to excess capacity.

If a Firm Has Excess Capacity, It Means