perfectly inelastic supply curve
perfectly elastic supply curve
fairly elastic supply curve
fairly inelastic supply curve
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Please Admin kindly Go Through This quesion The Correct Answer Is B
How Will A Firm Operating At Full Capacity Will Have Pefectly Inelastic Supply Curve When He Is Operating At Full Capacity
Marginal cost is equal to the average cost when the marginal cost is minimum. You can see in Fig. 1 that the MC curve cuts the ATC curve at its minimum or optimum point.
What is Excess Capacity?
Excess capacity (or unutilized capacity) occurs when a firm operates or is producing output at less than the optimum level. It can happen when there is a market recession or increased competition, where demand declines and firms are forced to reduce capacity to decrease costs.
To increase demand, companies typically decrease prices when there is excess capacity in the industry. Excess capacity is determined using the minimum long-run average cost; hence, it is not a short-run occurrence.
Economists normally study excess capacity in the context of market structures – perfect competition and monopolistic competition – which we will examine below.
Summary
Excess capacity is a situation where a firm does not produce at optimum or ideal capacity – mainly because of reduced demand.
Excess capacity is calculated using the minimum long-run average cost; hence, it is not a short-run occurrence.
There is no excess capacity in the long run for perfectly competitive markets.
