Capacity utilization is a measure of how much of a company’s production capacity is being used to produce goods. It is typically expressed as a percentage, and it can be calculated for individual machines, production lines, factories, or entire industries.
Capacity utilization is an important measure of a company’s efficiency and productivity. If a company is operating at or near full capacity, it may need to invest in additional resources to meet growing demand. Conversely, if a company is operating well below full capacity, it may have excess capacity that is not being used efficiently.
Capacity utilization can also be used as an economic indicator to gauge the health of an industry or the broader economy. When capacity utilization is high, it may indicate that demand for goods is strong and that the economy is growing. Conversely, when capacity utilization is low, it may suggest that demand for goods is weak and that the economy is in a slowdown or recession.
Capacity utilization is often monitored by companies and policymakers to help them make decisions about production levels, investment, and economic policy. By tracking capacity utilization, companies can identify opportunities to improve efficiency and profitability, while policymakers can use the measure to make decisions about interest rates, fiscal policy, and other economic interventions.
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