Capacity and Capacity Utilization in Production Economics

Dale Squires () and Kathleen Segerson ()
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Dale Squires: Southwest Fisheries Science Center
Kathleen Segerson: University of Connecticut

Chapter 24 in Handbook of Production Economics, 2022, pp 1001-1037 from Springer

Abstract: Abstract The concepts of capacity and capacity utilization (CU) help explain many economic phenomena, including investment behavior, productivity measurement, inventory behavior, entry/exit into an industry, market power, pricing, and profitability. This chapter provides an overview of the literature on capacity utilization, focusing primarily on the work within production economics but also noting the literature from related fields, especially macroeconomics. We focus on the two broad approaches that have been taken to defining capacity and CU, an engineering or technological approach based on production possibilities and an economic approach based on optimizing firm behavior. We discuss both the theoretical/methodological underpinnings of these concepts and some of the relevant empirical literature aimed at measuring capacity and/or CU.

Keywords: Capacity; Capacity utilization; Dual measures; Primal measures; Quasi-fixed inputs (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/978-981-10-3455-8_7

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