At any one time, a firm that has limited capacity
can face different demand-supply situations. There
could be excess demand, demand that’s more than
ideal capacity, well balanced demand and supply, or
excess capacity. When demand and supply are not
balanced, firms will have idle capacity during low
periods, but have to turn away customers during
peak periods. This situation is not ideal. Therefore,
firms should try to balance demand and supply.
To balance demand and supply, either capacity or
demand can be adjusted.