2.4.2 Capacity utilisation

Question 1

What is capacity utilisation?

Answer 1

Capacity utilisation is the percentage of the firm’s total possible production capacity that is actually being used.

Question 2

What is the formula for capacity utilisation?

Answer 2

Actual output / potential output x100

Question 3

What problems would be associated by a firm that has spare capacity?

Answer 3

1. Higher fixed costs per unit
2. Staff become bored and demoralized
3. Can portray a negative business image

Question 4

What advantages could there be with firms having some spare capacity?

Answer 4

1. Less stress for employees
2. The firm can cope with new ideas
3. Better experience for customers , if its a plane or a gym
4. More time for maintenance and repairs

Question 5

Business at 100% Full Capacity – Potential Problems

Answer 5

1. May not have enough time to make repairs
2. Wont be possible to meet new orders
3. Staff may feel under a lot of pressure
4. Less efficient

Question 6

How might a business react to working at full capacity?

Answer 6

1. Extra shifts and longer opening hours
2. Seasonal or temporary workers
3. Outsourcing
4. Expansion
5. Increase prices

Question 7

Causes of low capacity

Answer 7

1. New competitors taking market share
2. Fall in market demand
3. Unsuccessful marketing
4. Seasonal demand
5. Covid