Question
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
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
Upstudy AI Solution
Tutor-Verified Answer
Answer
When a production facility has excess capacity, the firm’s supply curve is likely price elastic.
Solution
When a production facility has excess capacity, it means the firm is not utilizing all of its available resources and can increase production without incurring significant additional costs. This flexibility allows the firm to respond more readily to changes in price.
Implications for the Supply Curve:
- Elastic Supply: A supply curve is considered elastic if the quantity supplied responds strongly to changes in price. Excess capacity provides the firm with the ability to increase or decrease production easily, making the supply more responsive to price changes.
- Inelastic Supply: Conversely, an inelastic supply curve indicates that the quantity supplied is relatively unresponsive to price changes, which is typically not the case when there is excess capacity.
Given that excess capacity indicates the firm can adjust production levels without substantial cost or delay, the firm’s supply curve is likely to be price elastic.
Correct Answer:
b. price elastic
b. price elastic
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution 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.
