Capacity Utilisation

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  • Created by: hamishc
  • Created on: 13-04-16 20:22
What is capacity?
Maximum output with available recources
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Formula for capacity utilisation
output / capacity x100
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3 disadvantages of 100% utilisation
Output can be greater than demand, business may have to turn away customers, business cant temporarily output for one off orders
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3 ways a business can increase capacity
Use of facilities for more than working week, business can buy more facilities, outsource manufacturing
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Disadvantage in under utilisation
Causes fixed costs to be spread over fewer units of output, so unit costs increase
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The 2 ways firms deal with under-utilisation?
First increase demand, or reduce capacity.
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2 ways firms can increase demand
Change marketing mix, subcontract competitors work
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Way firms reduce capacity
Closing production facilities
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Other cards in this set

Card 2

Front

Formula for capacity utilisation

Back

output / capacity x100

Card 3

Front

3 disadvantages of 100% utilisation

Back

Preview of the front of card 3

Card 4

Front

3 ways a business can increase capacity

Back

Preview of the front of card 4

Card 5

Front

Disadvantage in under utilisation

Back

Preview of the front of card 5
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