Analyzing Capacity: Underutilization and Capacity Shortage

The video tutorial discusses the concepts of capacity, underutilization, and capacity shortage in business. It explains how underutilization occurs when a firm's output is below its potential, leading to wasted resources and higher costs. The tutorial also covers the advantages and disadvantages of spare capacity, such as flexibility and increased costs. Strategies for rationalization to reduce spare capacity are provided. Additionally, the video addresses capacity shortage, where demand exceeds production, and suggests solutions like expanding space and hiring more staff.

What is the primary consequence of a capacity shortage in a stadium?

• Reduced maintenance costs

• Increased ticket prices

• Customer dissatisfaction and lost revenue

• Improved customer experience

Which of the following is NOT a cause of underutilization?

• Overinvestment in fixed assets

• Successful marketing campaigns

• Entry of new competitors

• Seasonal demand fluctuations

What is one advantage of having spare capacity?

• Lower profit levels

• Ability to meet sudden demand increases

• Increased employee burnout

• Higher unit costs

How can a business improve its capacity utilization?

• By expanding physical space

• By reducing maximum potential output

• By increasing the number of idle workers

• By decreasing production

What is a potential disadvantage of low capacity utilization?

• Improved company image

• Lower employee satisfaction

• Increased investor interest

• Higher unit costs

Which strategy can help a firm deal with capacity shortage?

• Decreasing physical space

• Outsourcing production

• Shortening working hours

• Reducing staff numbers

Why might increasing capacity be challenging for some organizations?

• It is always inexpensive

• It can be costly and complex

• It leads to immediate results

• It requires no additional resources