capacity utilisation

• The capacity of a business is a measure of how much output it can achieve in a given time period
• Why does capacity utilisation matter?

  • It's a useful measure of efficiency as it measures whether there are unused resources
  • Average production costs fall as output rises as fixed costs are shared across a higher level of output = higher utilisaion can reduce unit costs
  • Businesses usually aim to produce as close to the full 100% capacity
• Why does 100% capacity utilisation not happen?


  seasonal variation in production and demand

  broken/maintenance on machinery

  can't keep up with demand