Question

If a firm has excess capacity, it means question 7 options:

a.that the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity.
b.that the firm is not producing its minimum efficient scale of output.
c.that the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales.
d.that the firm's quantity supplied exceeds its quantity demanded

Answer 1

If a firm has excess capacity, it means that the firm is not producing its minimum efficient scale of output. When you think of the terms excess - meaning, more than it needs and capacity - ability to do something, then excess capacity means there is more capacity then being utilized. In this case, the firm is not producing its minimum amount it needs, so they have excess space to fill. Having excess capacity allows for more growth because there is more room for the company to preform within the realm of space they currently occupy.