The correct answer is: D. Perfect competition
Excess capacity is a situation in which a firm produces more output than it can sell at a profit-maximizing price. This can happen when a firm has too much capital, or when demand for its product is too low.
In a perfectly competitive market, firms are price-takers, meaning that they have no control over the price of their product. This is because there are many firms in the market, all selling identical products. As a result, each firm faces a perfectly elastic demand curve.
In order to maximize profits, a firm in a perfectly competitive market will produce at the point where marginal revenue equals marginal cost. This is the point at which the firm’s average cost curve is at its minimum.
If a firm produces more output than this, its average cost will be higher than the market price, and it will make a loss. Therefore, excess capacity is not noticed in a perfectly competitive market.
In a monopoly market, there is only one firm in the market. This firm has a great deal of market power, and it can therefore charge a price above marginal cost. As a result, the firm will produce less output than it would in a perfectly competitive market.
In a monopolistically competitive market, there are many firms in the market, but each firm sells a differentiated product. This means that each firm has some control over the price of its product. However, the demand curve for each firm’s product is still relatively elastic, so firms cannot charge a price that is too far above marginal cost.
In an oligopoly market, there are a few firms in the market, and each firm sells a differentiated product. The demand curve for each firm’s product is relatively inelastic, so firms have more market power than firms in a monopolistically competitive market.
In conclusion, excess capacity is not noticed in a perfectly competitive market. This is because firms in a perfectly competitive market are price-takers, and they produce at the point where marginal revenue equals marginal cost. This is the point at which the firm’s average cost curve is at its minimum.