UGC NET COMMERCE June 2019 Q18
0. Excess capacity is NOT noticed in which of the following market conditions?
- Option : D
- Explanation : Excess capacity is a long-run concept. Excess capacity, broadly speaking, measures the difference between least cost output and the profit-maximizing output; least cost output corresponds to the minimum point on the LAC curve and the profit maximising output corresponds to that point where MR = MC.
Excess Capacity in Perfect Competition: In perfect competition, due to free entry and exit of firms, normal profit are earned in the long-run. There is no excess capacity as the firm earns normal profit and stays at the minimum point of LAC curve (Fig.) That is, the least cost output coincides with the profit maximising output i.e., Xc = Xe. It is shown in fig.
