Excess Capacity as a Reason for Expanding Product-line The presence of excess production capacity is, perhaps, the most important single factor leading to product-line diversification. Broadly conceived, excess capacity is said to exist when it would cost the multiple-product firm less to make and sell the new product than it would cost a new company set up to produce only that product. Excess capacity may occur for several reasons. It may be the result of an unduly over-optimistic estimated market for the firm’s products. In such a case, if anticipated level of demand is not forthcoming, the firm develops excess capacity. Excess capacity may be due to seasonal variations in demand also, the latter being a result of weather and Continue reading