Under What Circumstances Does a Firm Operate with Excess Capacity

question 151

Multiple Choice

Under what circumstances does a firm operate with excess capacity

• A)when additional production would lower the average total cost
• B)when additional production would increase average total cost
• C)only if it is a perfectly competitive firm in the long run
• D)only if it is a monopolistically competitive firm in the short run

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Definitions:

Investment Centers

Business units or departments that are directly responsible for generating returns on assets allocated to them.

Controllable Margin

The portion of profit or margin that can be directly influenced by managing costs or expenses within a department or area.

Average Operating Assets

The average value of the assets used in the operation of a business, taken over a specific period, which may be used to evaluate the effectiveness of asset use in generating revenue.

Return on Investment

A measure of the profitability of an investment, calculated by dividing the net profit by the initial cost of the investment.