Final answer:
When there is excess capacity in a production facility, the firm's supply curve is likely to be perfectly elastic, meaning the quantity supplied can change massively in response to price changes, and is visually represented by a horizontal line on a graph.
Step-by-step explanation:
If there is excess capacity in a production facility, it is likely that the firm's supply curve is perfectly elastic. A perfectly elastic supply curve means that the quantity supplied can change infinitely in response to any change in price.
This situation is depicted as a horizontal line in supply and demand graphs, indicating that a specific quantity will be supplied at a specific price, and quantity can move from zero to infinite as soon as the price reaches a certain level.
In contrast, inelastic supply indicates a lower responsiveness to price changes, where a 1 percent increase in price will result in less than a 1 percent increase in production.
Perfect elasticity, also known as infinite elasticity, is characterized by the extreme responsiveness of supply to price changes. If a firm has excess capacity, it can produce more goods without increasing cost significantly, which corresponds with a perfectly elastic supply situation.
If there is excess capacity in a production facility, it is likely that the firm's supply curve is perfectly elastic. Perfectly elastic supply means that the quantity supplied is extremely responsive to price changes, moving from zero for prices close to P to infinite when prices reach P.
In the case of excess capacity, the firm can increase its production without any increase in price, indicating a perfectly elastic supply curve.