Answer:
a. Excess capacity exists
Step-by-step explanation:
The law of supply states that, all things being equal (ceteris paribus), an increase in the price of product or service causes an increase in the quantity of the product that will be supplied. An increase in price causes the supply curve to slope upward, therefore, giving producers of goods and service providers, an incentive to supply more quantity of their products and vice-versa.
Also, the demand for goods and services has an effect on the quantity of goods and services provided by the producers or suppliers, all things being equal. Hence, an increase in the demand for a product would result in an increase in price, thereby causing the producers to supply more quantity in order to maximize profits.
For instance, an electronic gadget company will manufacture more television sets if the price of those television increase.
Hence, firms are more likely to accept a special order for one of their products at a reduced price if excess capacity exists.
This ultimately implies that, when a company has more goods in its inventory or its stocks are in excess, the company will be willing to accept special orders from its customers.