OPERATONS-3.4

• What is capacity?

  A measure of how much output it can achieve in a given time period.
• What is the formula for capacity utilisation?

  Capacity utilisation= existing level of output X100

  maximum possible output
• Why does capacity utilisation matter?

  • A useful measure of efficiency
  • Average production fall as output rises as fixed costs a shared across a higher level of output
  • Higher utilisation can reduce unit costs
  • More competitive
  • Firms aim to produce as close to full capacity as possible to minimise unit costs
• Why do firms operate below full capacity?

  • Seasonal variations of demand e.g. ice cream
  • Recent increases in capacity
  • Maintenance and repair programmes
• What are 3 ways to increase capacity utilisation?

  • Increase output
  • Motivation
  • Decrease maximum possible output
• Any business not working at 100% capacity utilisation is said to have spare capacity

  -Possible to increase production
• What is labour productivity?


  A measure of output per employee.
• What are the key factors influencing labour productivity?

  • Extent and quality of fixed assets-equipment
  • Skills, ability and motivation of the workforce
  • Methods of product organisation
  • Extent to which the workforce is trained and supported
  • External factors.
• How do you calculate labour productivity?

  Output per worker

  Number of employees at working