Answer :
To make fighting entry a credible threat, incumbent enterprises occasionally invest in surplus capacity (the ability to create more output than they are currently producing).
Write a brief note on surplus.
The quantity of an item or resource that is over the amount that is being actively used is referred to as a surplus. Income, earnings, capital, and goods are just a few of the several things that might be referred to as a surplus. A surplus in the context of inventories refers to items that are still unsold and on store shelves. When money is earned and costs are paid, there is a surplus in a budget. When there is excess tax money after all government programs have been completely funded, governments can also experience a budget surplus.
Economic surplus is basically of two types : consumer surplus and production surplus. When the cost of a good or service is less than the maximum price a customer would be prepared to pay, there is a consumer surplus. When products are sold for more than the producer was willing to sell them for, a producer surplus results.
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The complete question is given below :
Sometimes incumbent firms invest in excess capacity (meaning that they could produce more output than they are currently producing). Why would they spend the money on investments like this?
a. uncertainty or volatility in future demand
b. to make fighting entry a credible threat
c. to reduce their total costs