Capacity Planning and Economies of Scale

What is capacity planning?

• A measure of how efficiently resources are used over time.

• The process of determining the maximum capacity needed to meet demand.

• The method of increasing business output without additional resources.

• The act of lowering costs by reducing production.

What happens when a firm is not operating at full capacity?

• Demand will exceed supply, and the firm may lose customers to competitors.

• Supply will exceed demand, and the firm will waste resources.

• The firm will achieve optimal production efficiency.

• The firm will reduce operational costs.

Design capacity refers to:

• The ideal output achieved when resources are fully utilized.

• The maximum output a system can achieve under ideal conditions.

• The output achieved by minimizing operational inefficiencies.

• The output achieved during periods of high demand.

What is the formula for capacity utilization?

• Actual Level of Output ÷ Maximum Possible Output × 100.

• Maximum Possible Output ÷ Actual Level of Output × 100.

• Output Potential ÷ Input Resources × 100.

• Actual Level of Output × Maximum Resources Used.

Which of the following is not a factor that could cause a firm to produce below capacity?

• Increased seasonal demand.

• Maintenance and repair work being done.

• Poor demand due to changes in consumer preferences.

• Failed marketing efforts.

One of the problems of producing at full capacity is:

• Improved quality of products due to higher efficiency.

• Employees may experience overwork and stress, leading to high staff turnover.

• An increase in maintenance time for equipment.

• Increased flexibility to respond to unexpected demand.

Idle resources in a business result in:

• Lower production costs.

• Higher capacity utilization.

• Inefficient use of capital and higher fixed costs.

• Increased demand for products.

Methods to increase a firm's capacity include:

• Reducing the number of part-time employees.

• Encouraging machine downtime for maintenance.

• Redeploying unused labor or outsourcing parts of the production process.

• Decreasing sales through less promotion.

What is a possible effect of producing below full capacity?

• The business can easily meet unexpected increases in demand.

• Per-unit production costs may increase, leading to higher consumer prices.

• The firm will face no competition from other businesses.

• The firm will experience fewer fixed costs.

A firm operating at full capacity may experience:

• Lower employee turnover and higher morale.

• Difficulty meeting unexpected demand, potentially leading to loss of sales.

• Improved product quality due to enhanced focus on production.

• Extended time for machine maintenance.