Economics/Competition and capacity constraints
My question is about competition and capacity utilization.
I picture a scenario of several competitors. Letīs assume 10 competitors. Capitalism states that free competition should let these firms freely compete in order to deliver the highest value to consumers. However, if all these firms are competing for sales, there must be some unutilized capacity, which should allow them to sell more than competitors. Otherwise, there would be no point in trying to steal customers from other competitors, by delivering the best price and quality (unless, of course, higher sales volumes could be due to higher charged prices and not quantity).
So, it seems that, in order for competition to be effective, there should be some unutilized capacity/flexibility by different competitors. However, unutilized capacity seems to me a source of inefficiency itself. I would like to know your thoughts about this issue and whether you think this happens or not in the real world and, if not, what are the mechanisms that allow competition to be, in fact, effective in terms of value delivered for consumers.
Thank you in advance
ANSWER: Thank you for your query and apologies for the delay. I have been debating whether to respond or not. I do not do homework questions because by doing the homework for others, I would be hindering their learning process. From your question, I see you have several queries. You are mixing different concepts. Thus is not clear to me what kind of thoughts you are asking me to lay on this message. I would appreciate if you rephrase your question and state your question clearly. Also, you may want to go back to the text book or author you have been reading and check the assumptions of a competitive market, the definition of capitalism as an economic system and what it entails, production possibilities frontier and production functions, and theory of the firm. Furthermore, you may want to check out market theory and market inefficiencies. Let me know. Thank you and again, my apologies for the delay.
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QUESTION: Thanks for answering. Well, this isnīt a homework question, I can assure you.Just curiosity and look for insight from someone who knows better.(I think it would be a waste if this website was used only for answering homework questions)
Iīm asking whether competition implies some degree of excess capacity by default.
For instance, restaurants will often compete against each other in order to get more costumers than their rivals. And I canīt see how competition can be effective if a firm doesnīt have capacity to sell more instead of a competitor. To sell more than a competitor, in this case the restaurant, should have capacity in excess to embrace more costumers.
ANSWER: Thank you for your follow up query. I think you are confusing terms. In a perfectly competitive market, there is no excess capacity at equilibrium. If there is any, is in the process to equilibrium. Or do you have in mind the natural rate of unemployment concept? Is that it? As for restaurants they have a given capacity. when all the tables are full, that's that. you cannot sit more customers until a table gets emptied. the restauranteur may have a couple of extra tables in the basement and squeeze them if needed but a restaurant has a given square footage and a given number of tables that will sit a given and maximum number of patrons. I really do not see how a restaurant will have excess capacity. Now in reality, a restaurant may not be working at full capacity every day, and would have empty tables. But this is a different story and a different question from the one you wrote. Please refer to a text book for the definitions. Good luck.
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QUESTION: Iīm wondering if you could recommend to me some books/articles you have, eventually, read and find appropriate for my question. Iīm not asking you to do some research for me. Just asking for advice.
Thank you for your answers.
From the top of my head, the textbooks I could recommend are too advanced. You may want to check with the reference librarian at your closest library and choose a few books. If a library is not close by, a Barnes and Noble or any big bookstore would do. Good luck.