spare capacity

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Capital equipment which is not currently needed for production. Firms like to have some spare capacity available, to meet sudden increases in demand for their products, and to be able to maintain production if equipment breaks down. Spare capacity is costly to purchase and maintain, however, so there is a limit to the amount that is wanted. Where firms have equipment which is too unlikely to be needed to be worth maintaining, this is excess capacity.

Subjects: Economics.

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