Everything else equal, a firm that has excess capacity generally requires more external financing to support increases in operations than a firm that operates at full capacity.

Question

Quizplus · Accepted Answer

A firm that operates at full capacity is already utilizing all of its resources efficiently, while a firm with excess capacity has unused resources that can be used to support increases in operations without requiring additional external financing. Therefore, a firm with excess capacity generally requires less external financing compared to a firm that operates at full capacity.

Everything Else Equal, a Firm That Has Excess Capacity Generally