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.

Discuss the disadvantages of having spare capacity in a business.

How does capacity utilization affect a company's profitability?

What strategies can a business implement to increase its capacity?