Excess capacity increases the responsiveness of supply to price changes. Here's why:

1. Excess capacity refers to the situation where a firm is producing at a lower scale of output than it has been designed for.

2. If a firm has excess capacity, it means it has idle resources that can be used to increase production.

3. When there is a price increase, firms with excess capacity can respond quickly by increasing their output to take advantage of the higher prices. This is because they already have the resources in place to do so.

4. Therefore, the presence of excess capacity makes the supply more responsive to price changes.

So, the correct option is "Increases responsiveness".

Question

Excess capacity increases the responsiveness of supply to price changes. Here's why:

1. Excess capacity refers to the situation where a firm is producing at a lower scale of output than it has been designed for.

2. If a firm has excess capacity, it means it has idle resources that can be used to increase production.

3. When there is a price increase, firms with excess capacity can respond quickly by increasing their output to take advantage of the higher prices. This is because they already have the resources in place to do so.

4. Therefore, the presence of excess capacity makes the supply more responsive to price changes.

So, the correct option is "Increases responsiveness".

Knowee AI · Accepted Answer

Excess capacity increases the responsiveness of supply to price changes. Here's why:

1. Excess capacity refers to the situation where a firm is producing at a lower scale of output than it has been designed for.

2. If a firm has excess capacity, it means it has idle resources that can be used to increase production.

3. When there is a price increase, firms with excess capacity can respond quickly by increasing their output to take advantage of the higher prices. This is because they already have the resources in place to do so.

4. Therefore, the presence of excess capacity makes the supply more responsive to price changes.

So, the correct option is "Increases responsiveness".

How does excess capacity impact the responsiveness of supply to price changes?Option Increases responsiveness Leads to a vertical supply curve Does not impact responsiveness Decreases responsiveness

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