Capacity in excess of expected demand that is intended to offset uncertainty is a:

• A. reserve capacity
• B. marginal utility
• C. opportunity cost
• D. buffer stock

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of capacity in microeconomics. Capacity refers to the maximum output a firm can produce with the available resources and technology.
2. Step 2: Recognize that when firms produce more than the expected demand to handle uncertainty or fluctuations, this extra capacity is meant to act as a safeguard.
3. Step 3: Identify the term that describes this extra capacity. It is not 'marginal utility' (which relates to additional satisfaction from consumption), nor 'opportunity cost' (which is the cost of the next best alternative), nor 'buffer stock' (which relates to inventory management).
4. Step 4: The correct term for capacity held in excess of expected demand to offset uncertainty is 'reserve capacity'.
5. Step 5: Conclude that 'reserve capacity' is the appropriate answer because it directly refers to the extra capacity maintained to manage demand variability and uncertainty.