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 ?
'For run-of-river, there's no excess capacity. It will be filled up but they won't be able to meet it within the year.
'It is not because of an excess capacity, it is because of a complete failure of a government that decided to subsidise power without making adequate provision for it.'
Between 2012-13 to 2016-17, excess capacity in the thermal power sector had increased to an average of 42 per cent on account of a significant increase in capacity and lower-than-expected growth in power demand.
figure By BRIAN NGUGI Mega electricity generation projects valued at billions of shillings are in limbo after distributor Kenya Power froze the signing of new power purchase agreements (PPAs) indefinitely, citing financial constraints and excess capacity.Kenya Power chairman Mahboub Maalim Mohamed said the monopoly electricity distributor would not sign new PPAs pending a sector review intended to establish the country's additional demand for energy.
Prior research in industrial organization suggests that excess capacity can be perceived as a deterrent to entrants.
Over the course of the meeting, which will be held at the headquarters of the Organization for Economic Cooperation and Development (OECD), in Paris, ministers and senior officials from G20 and OECD countries will look to address steel excess capacity in global markets, increasing information sharing and cooperation, and implementing effective measures to comply with the forum's recommendations adopted under the German G20 presidency.
Hyundai Motor Company (KSE: 005380), a South Korea-based automaker, is planning to use the excess capacity of its plants in China to cater to markets in Southeast Asia.
In 2015, Kyrgyzstan and China agreed on possibilities for transfer of excess capacity from China to Kyrgyzstan.
The Secretary found that the present quantities of steel articles imports and the circumstances of global excess capacity for producing steel are weakening our internal economy, resulting in the persistent threat of further closures of domestic steel production facilities and the shrinking of our ability to meet national security production requirements in a national emergency.
The recent global excess capacity is 700m tonnes, almost seven times the annual total of US steel consumption.
Policymakers have to strike a delicate balance between supporting economic growth, mainly through increasingly less effective debt stimulus, and tackling the long-term challenges of a large debt burden and excess capacity. An uncertain global environment in the past few years has forced the authorities to prioritise growth through stimulus to counter fears of a hard slowdown, the bank said in a report.
While insurance markets contracted, excess capacity continues to flow inwards, driving competition and, as a consequence, protectionism.