Excess capacity refers to the:

A) amount by which actual production falls short of the minimum ATC output.

B) fact that entry barriers artificially reduce the number of firms in an industry.

C) differential between price and marginal costs which characterizes monopolistically competitive firms.

D) fact that most monopolistically competitive firms encounter diseconomies of scale.

Question

Business

Jagger Silva

2 November, 01:19

Excess capacity refers to the:

A) amount by which actual production falls short of the minimum ATC output.

B) fact that entry barriers artificially reduce the number of firms in an industry.

C) differential between price and marginal costs which characterizes monopolistically competitive firms.

D) fact that most monopolistically competitive firms encounter diseconomies of scale.

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Answers (1)

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Ruth · Answer 1

Answer: (A) amount by which actual production falls short of the minimum ATC output.

Explanation:

Excess capacity is a situation where by production is higher than demand, it occurs where there is a permanent declines in patronage, when this happens the price of such product declines so as to increase sales and attract more customers. If excess capacity in a company is not well managed it could lead to bankruptcy.