Which of the following statements is true regarding excess capacity?
A) Firms usually have excess capacity when the demand for the product is very high.
B) Excess capacity exists because the product is extremely useful and cheap but has no competitors.
C) If the demand of a product falls, excess capacity declines.
D) If the demand for a firm's product is stable, then excess capacity is likely to increase.
E) Excess capacity can be a safety net if demand suddenly picks up.

Question

Quizplus · Accepted Answer

Excess capacity refers to the situation where a firm has more production capability than currently needed to meet demand. It serves as a buffer or safety net, allowing the firm to quickly ramp up production if demand unexpectedly increases, without the need for immediate investment in new facilities or equipment.

Which of the Following Statements Is True Regarding Excess Capacity