Capacity & Capacity Utilisation

• What is the definition of capacity?

  the maximum amount that can be produced or utilised
• What are the factors that determine the capacity of a business?

  Capacity is determined by the quantity and quality of

  -labour

  -capital (machinery and equipment)

  -materials
• What is capital intensive production?

  Capital intensive production requires large amounts of investment in machinery and equipment relative to the amount spend on labour
• what is labour intensive production?

  It requires large amounts of investment/ spending on labour relative to the amount of machinery
• What are 3 disadvantages about not having enough capacity?

  -can't meet demand

  -lose customers to competitors

  -limits revenue
• what are the 3 disadvantages of a business having too much spare capacity?

  -unused resources

  -money spend on resources that aren't utilised

  -increased costs (cost per unit)
• what is the equation for capacity utilisation?

  (current capacity $\div$ maximum capacity) x 100
• Why is capacity utilisation important?

  -helps businesses be efficient

  -assess their current operating efficiency