Monopolistic competition is a market structure in which there are many firms that sell differentiated products. This means that firms have some degree of control over the price of their product. In such a market structure, excess capacity in the firm always exists.

Excess capacity refers to the situation when a firm is not producing at its full capacity. This means that the firm has the capability to produce more goods than it currently is producing. In monopolistic competition, firms have some degree of market power, which allows them to set prices higher than their marginal cost. However, since there are many firms in the market, each producing a slightly different product, the demand for each firm's product is limited.

This limited demand means that firms cannot sell all the goods that they are capable of producing at the market price. As a result, they have excess capacity. This excess capacity is a characteristic feature of monopolistic competition and arises because firms are not producing at their full capacity.

The existence of excess capacity has important implications for the efficiency of the market. Firms with excess capacity are not producing at their lowest possible cost. This means that resources are being wasted, and the market is not operating at its most efficient level. Furthermore, firms with excess capacity may be tempted to engage in price wars to increase their market share, which can result in lower profits for all firms in the market.

In conclusion, excess capacity always exists in firms operating in monopolistic competition. This is due to the fact that firms have some degree of market power, but the demand for their product is limited. The existence of excess capacity has important implications for the efficiency of the market and can result in lower profits for firms.