Excess capacity results from a
A)downward-sloping demand curve and a U-shaped ATC curve.
B)downward-sloping demand curve and no fixed costs.
C)horizontal demand curve and an upward-sloping marginal cost curve.
D)perfectly inelastic demand curve and a downward-sloping ATC curve.

Question

Quizplus · Accepted Answer

Excess capacity occurs when a firm produces at a level below its minimum efficient scale, resulting in its average total cost being higher than it could be. This condition is met when a firm faces a downward-sloping demand curve and has a U-shaped average total cost curve.

Excess Capacity Results from a