excess capacity

excess capacity

see OVERCAPACITY.
Excess capacityclick for a larger image
Fig. 63 Excess capacity. Under the imperfect market conditions of monopolistic competition, the equilibrium (PROFIT MAXIMIZING) position for the firm is at a point (Qe) to the eft of the cost-minimizing point (Qc) on the long-run average total cost curve; industry output is less, and costs are higher than the optimum position. Thus ‘excess capacity’ is measured as the difference between actual industry output and the cost-minimizing level of industry output (distance AB).

excess capacity

  1. 1a situation where a firm or industry has more plant to supply a product than is currently being demanded. As a result a proportion of the firm or industry's CAPACITY is left idle. Excess capacity can result from a temporary (short-run) downturn in demand, a secular (long-run) fall in demand, or from the industry having overinvested in new plant relative to long-run demand potential. In the latter two instances, excess capacity may be eliminated by an intensification of competitive pressures (see EXCESS SUPPLY), which forces the more inefficient suppliers to exit the industry, or by RATIONALIZATION schemes.
  2. in economic theory, the cost structures of firms operating in imperfect markets. Industry output is maximized (that is, full capacity attained) when all firms produce at the minimum point on their long-run average total cost curves (see PERFECT COMPETITION). See Fig. 63 for the effect of MONOPOLISTIC COMPETITION.
References in periodicals archive ?
The recent global excess capacity is 700m tonnes, almost seven times the annual total of US steel consumption.
The Global Forum on Steel Excess Capacity commenced under the G20 Leaders call for a forum to address steel excess capacity worldwide.
The excess capacity is unlikely to be soaked up soon given that 1.
In a draft statement obtained by Reuters, the G20 finance ministers and central bank governors meeting in China's southwestern city of Chengdu said that excess capacity problems, "exacerbated by a weak global economic recovery and depressed market demand, have caused a negative impact on trade and workers.
In January, Chinese media reported that Beijing was expected to spend some $15 billion annually implementing a program to reduce the excess capacity of country's heavy industry.
In the case it filed in the Department of Justice, SMEC claimed there was an illegal grant of the so-called excess capacity of the two-unit Sual Power Plant to TPEC, which enabled it to receive around P17.
The trading of the 200-megawatt excess capacity of the Sual coal-fired power facility in Pangasinan is legal and above-board, plant operator TeaM Energy Philippines has qualified in a statement to the media.
Summary: Copper fell in London after slumping factorygate prices in China, the world's biggest consumer of the metal, reflected a slowdown and excess capacity in the nation's economy.
The Internet age has allowed remarkable use of excess capacity on an individual level, Ms.
Confirming its intentions to maintain a 'moderately loose' stance for 2010, the bank also said that it would restrict credit for industries with excess capacity.
The automaker has excess capacity to manufacture engines for export.
The cost of excess capacity is being passed on to users, thereby inflating the cost of engineering service.