Capacity

AAA

DEFINITION of 'Capacity'

The maximum level of output of goods and/or services that a given system can potentially produce over a set period of time. In most cases, it is unlikely that any system will operate at full capacity for prolonged periods, because natural inefficiencies and other factors decrease potential output.

INVESTOPEDIA EXPLAINS 'Capacity'

The widget manufacturer may be able to produce 150,000 widgets in a month. However, due to downtime because of equipment maintenance and worker illness, only about 130,000 widgets can actually be produced per month. Over the long run, a business can increase its capacity and output by acquiring more factors of productions. For example, if market demand for widgets spikes, the widget manufacturer can buy more equipment and hire more workers, and thus increase its capacity to 175,000 widgets per month.

RELATED TERMS
  1. Capacity Management

    The management of the limits of an organization's resources, ...
  2. Aggregate Capacity Management

    The process of planning and managing the overall capacity of ...
  3. Operating Expense

    A category of expenditure that a business incurs as a result ...
  4. Production Possibility Frontier ...

    A curve depicting all maximum output possibilities for two or ...
  5. Output Gap

    An economic measure of the difference between the actual output ...
  6. Excess Capacity

    A situation in which actual production is less than what is achievable ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. Ratio Analysis Tutorial
    Fundamental Analysis

    Ratio Analysis Tutorial

  3. Doing More With Less: The Sales-Per-Employee ...
    Investing

    Doing More With Less: The Sales-Per-Employee ...

  4. Executing A Swot Analysis
    Investing Basics

    Executing A Swot Analysis

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center