Definition of Excess capacity:
The term excess capacity is generally used in manufacturing. If you see idle workers at a production plant, it could imply that the facility has excess capacity. However, excess capacity can also apply to the service sector. In the restaurant industry, for example, there are establishments that chronically have empty tables, along with a staff that appears unproductive. This inefficiency indicates that the venue can accommodate more guests, but that the demand for that restaurant is not equal to its capacity.
Excess capacity is a condition that occurs when demand for a product is less than the amount of product that a business could potentially supply to the market. When a firm is producing at a lower scale of output than it has been designed for, it creates excess capacity.
Output volume at which marginal cost is less than the average cost and, hence, where it is possible to decrease average cost by increasing the output. Excess capacity may be measured by the amount of additional output that will reduce the average cost to a minimum.
How to use Excess capacity in a sentence?
- The excess capacity was focused on during the meeting as an opportunity to improve efficiency in our value added process.
- Excess capacity can indicate healthy growth, but too much excess capacity can hurt an economy.
- Through careful planning and staffing we are able to ensure that the equipment we use is never running at excess capacity .
- The term excess capacity pertains mainly to manufacturing, but it's also used in the services sector.
- Excess capacity exists when the market demand for a product is less than the volume of product that a company could potentially supply.
- We had excess capacity and that meant a few things for us and I tried to explain it to the workers as clearly as possible.
Meaning of Excess capacity & Excess capacity Definition