5.6 production planning

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Last updated 10:07 AM on 4/9/26
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8 Terms

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capacity utilization

measures a firm’s existing level of output as a proportion of its potential output

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capacity utilization equation

(actual output / max output) x 100

3
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disadvantages of CU

requires equipment and machinery always being used so no time for maintenance, overburden workers, expensive

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methods to improve CU

improved marketing to increase sales, subcontract work, reduce capacity

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spare capacity

how much extra a firm could increase production by

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how does a higher CU affect fixed costs per unit

higher CU decreases fixed costs per unit

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what is the ideal level fo CU

90%

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why is 100% CU not ideal

quality may be sacrificed, workers may feel overworked and unmotivated, no flexibility