the optimum level is 90% allowing fixed costs to be low as they are spread over large number of units, scope to meet new orders
1 of 9
reasons why a firm may be operating below max capacity
new competitors, fall in demand, seasonal demand, merger/takeover
2 of 9
how would business cut capacity
reduce number of shifts, move to smaller premises, sell off fixed assets (machinery)
3 of 9
how would a business increase capacity
overtime, flexible workforce, building factories, hire new staff
4 of 9
advantages of spare capacity
time for maintenance repair/training, less stress, business can cope with a sudden increase in demand
5 of 9
disadvantages of spare capacity
higher unit costs, lower profit levels, can portray a negative image (fitness club), employees may become bored and demotivated
6 of 9
drawbacks of working at 100% capacity utilisation
staff feel under pressure leading to mistakes-absenteeism-labour turnover, overtime is expensive, overcrowded factory space, cant take on new orders, no time for maintenance
7 of 9
rationalisation definition
reducing capacity to save unnecessary expenditure
8 of 9
ways of rationalising
lay off workers, shorter working days, sell part of production area
9 of 9
Other cards in this set
Card 2
Front
reasons why a firm may be operating below max capacity
Back
new competitors, fall in demand, seasonal demand, merger/takeover
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