Capacity utilisation

• what is capacity?


  the max level of output a firm can produce in a given time period with a given amount of resources e.g. workers amchinery
• what does the cpaacity of a firm depend upon?

  amount and quality of machinery it possesses, existing level of tech, number and skills and levels of motivation of its employees
• what is capacity utilisation?

  measures the amount a firm is producing compared to the amount it could produce(maximum capacity)
• what is capacity utilisation measured by?

  actual level of output/ capacity x 100
• what is the link between capacity utilisation and fixed costs?

  capacity utilisation has an inverse relationship with fixed costs when its high fixed costs per unit are low. when its low fixed costs per unit are high
• what is the ideal level of capacity utilisation?

  a firm operates at near between 90 and 95% capacity utilisation. 100% is where the firm operates at full capacity
• what are methods to increase capacity utilisation?

  increase demand, rationalisation, outsourcing
• why is high capapcity utilisation important to all firms?

  not as important if FC are a small proportion of total costs as variable cost can charge when output does

  if limited competition exists firms may charge higher prices

  seasonality

  recession, excess capacity