2.4.2 - Capacity Utilisation Flashcards
1
Q
What is capacity utilisation?
A
A measure of the percentage of potential output being achieved
2
Q
How can the maximum level of output be achieved?
A
If all resources are fully utilised
3
Q
What does over utilisation mean?
A
The firm is “sweating” its assets and are being made to work to hard
4
Q
What are the solutions to over utilisation?
A
- reduce demand
- outsource parts of the business’ operations
- increase capacity by investing in more resources
5
Q
How does capacity affect a business?
A
Affects the firms ability to match supply to demand
6
Q
What is under utilisation?
A
Firms resources are “sitting idle” and aren’t being made to work effectively for the business, resulting in higher unit costs
7
Q
How is capacity utilisation calculated?
A
Current output / maximum possible
