Price ($) 20 LRAC Quantity MR Figure 1: Excess Capacity 8. Refer to Figure 1. How is the excess-capacity theorem demonstrated in this diagram? (a) The short-run equilibrium occurs where the firm is producing output at q0, which is less than that corre- sponding to the lowest point on its LRAC curve. (b) In long-run equilibrium, this firm has excess capacity because they are selling output at a price below their LRAC. (c) The long-run equilibrium occurs where the firm is producing output at q0, which is less than that corre- sponding to the lowest point on its LRAC curve. (d) The long-run equilibrium occurs where the firm is producing output at ql, which is the same as for a perfectly competitive industry. (e) In long-run equilibrium the firm is earning positive profits, but has unexploited economies of scale