Capacity Utilisation and Economies of Scale Quiz

What does capacity refer to in a firm?

• The market share of a firm

• The total level of output that can be produced

• The amount of money a firm can invest

• The number of employees in a firm

What is capacity utilisation?

• The total number of employees working in a firm

• The amount of spare capacity available

• The measure of actual output as a percentage of maximum potential output

• The total cost of production

What is the most common target for capacity utilisation in firms?

• 90 percent

• 75 percent

• 100 percent

• 50 percent

What is a potential issue of operating at 100 percent capacity?

• Higher employee satisfaction

• No allowances for emergencies

• Increased profits

• Lower production costs

Which of the following is a method to improve capacity utilisation?

• Reducing the number of shifts

• Decreasing production output

• Employing more part-time workers

• Increasing fixed costs

What are internal economies of scale?

• Benefits from outsourcing production

• Benefits from government subsidies

• Benefits gained as a firm increases in size

• Benefits gained as the industry grows

Which of the following is NOT an internal economy of scale?

• Competition for skilled labor

• Purchasing economies

• Financial economies

• Technical economies

What is a characteristic of external diseconomies of scale?

• Competition for skilled labor

• Lower marketing costs

• Improved local infrastructure

• Increased efficiency in production

What can happen if a firm operates at zero capacity?

• It will make profits

• It will cover its fixed costs easily

• It will incur losses

• It will increase its market share

Which of the following is a challenge associated with increased capacity utilisation?

• Improved employee morale

• Lower production costs

• Increased market share

• Reduced profits