If a firm has excess capacity,it
A) produces less than its efficient scale.
B) should advertise to maximize profits.
C) should decrease its markup to increase its profit.
D) is a perfectly competitive firm.
E) must face a horizontal demand curve.

Question

Quizplus · Accepted Answer

If a firm has excess capacity, it means that it is producing less than its efficient scale. This is because excess capacity refers to the ability of a firm to produce more output at a lower average cost than it currently is producing. Therefore, producing less than its efficient scale is the best choice for a firm with excess capacity.

If a Firm Has Excess Capacity,it