The Measurement and Interpretation of Capacity Utilization
Recognition of scarcity or fixity of resources is the key to development of the concepts of capacity and capacity utilization. The degree of scarcity, in fact, uniquely determines the amount of available capacity because “capacity” refers to the amount of resources — say fixed capital and/or labor and energy resources — one has available to “utilize” for production of output. If “not enough” (somehow defined) output is being produced, we say that capacity is underutilized. People could potentially obtain more goods and services at lower cost given the available inputs and technology.
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