Capacity Utillisation

Question 1

Full capacity

Answer 1

Full capacity means that all employed factors of production are being used to their optimum level of efficiency – producing the maximum level of output, given the business’s current investment levels.

Question 2

impacts of under capacity production include:

Answer 2

Reduced profits. This will limit capital for investment and research and development, causing a reduction in long-term competitiveness.
Lack of return on investment capital. Producer goods will continue to depreciate, even though they are not being used to full capacity. Technology will move on, putting pressure on businesses to replace fixed assets that otherwise have plenty of productive potential.

Question 3

Resolving the problems

Answer 3

subcontracting of production
rationalisation
increasing the use of assets.

Question 4

Increasing use of assets

Answer 4

Retailers can sublet some of their shop floor space – for example, supermarkets could include hairdressers or chemists. Manufacturing businesses can expand their ranges by looking for new markets or market niches (although development and marketing investment costs must be considered). They could possibly act as subcontractors for other producers. This increased use of investment goods is often referred to as ‘making your assets sweat’.

Question 5

Subcontracting

Answer 5

Getting other businesses to produce goods

Question 6

Rationalisation

Answer 6

Getting rid of non profitable products. Only focusing on the ones making profit

Question 7

Problems with working at full capacity

Answer 7

There are also many problems associated with producing or working at full capacity, these include:

lack of flexibility
possible fall in quality
pressure on staff
more breakdowns and machine failures.