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If there is excess capacity in a production facility, it is likely that the firm’s supply curve is
a. price inelastic
b. price elastic
c. unit price elastic
d. none of the answer choices

Ask by Byrd Alexander. in the United States
Jan 27,2025

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When a production facility has excess capacity, the firm’s supply curve is likely price elastic.

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Beyond the Answer

When a firm has excess capacity in its production facility, it means that it can increase output without incurring significant additional costs. This flexibility generally leads to a more responsive attitude to changes in price, making the firm’s supply curve more price elastic. In essence, a price change will lead to a proportionately larger change in the quantity supplied.
Additionally, firms with excess capacity can quickly ramp up production to meet increased demand, thereby allowing them to capitalize on higher prices without facing the constraints of limited production resources. This adaptability not only benefits the firm in maximizing profits but can also lead to more competitive pricing in the market.

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