Excess Capacity

AAA

DEFINITION of 'Excess Capacity'

A situation in which actual production is less than what is achievable or optimal for a firm. This often means that the demand in the market for the product is below what the firm could potentially supply to the market.

INVESTOPEDIA EXPLAINS 'Excess Capacity'

The amount of excess capacity within an industry is a signal of both the health of that industry and the demand for the products it produces. Excess capacity is also seen as a good thing for consumers, as it is not likely to lead to the price inflation that would be seen in periods of near-full capacity. A company with sizable excess capacity can often lose a considerable amount of money if it is not able to meet the high fixed costs that are associated with producers.

RELATED TERMS
  1. Capacity Management

    The management of the limits of an organization's resources, ...
  2. Aggregate Capacity Management

    The process of planning and managing the overall capacity of ...
  3. Economics

    A social science that studies how individuals, governments, firms ...
  4. Economy

    The large set of inter-related economic production and consumption ...
  5. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  6. Production Possibility Frontier ...

    A curve depicting all maximum output possibilities for two or ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. What's the difference between macroeconomics ...
    Investing

    What's the difference between macroeconomics ...

  3. The Better Inflation Hedge: Gold or ...
    Investing News

    The Better Inflation Hedge: Gold or ...

  4. Coping With Inflation Risk
    Bonds & Fixed Income

    Coping With Inflation Risk

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center