capacity utilisation

• What is capacity utilisation?

  A measure of the extent to which the productive capacity of a business is being used
• What is the capacity utilisation formula?

  Actual level of output/maximum possible level of output X 100
• Give 2 reasons as why capacity utilisation is an important concept?

  Used as a measure of productive efficiency

  Higher utilisation can reduce unit costs - making a business more competitive
• Why do businesses operate at less than 100% capacity for lower demand?

  General reduction in overall market demand

  Loss of market share