Staffordshire Steel owns steel producing factories in the UK.
In 2022, the factories operated at an average of 70% of their capacity.
The most likely way for Staffordshire Steel to increase capacity utilisation is to?
Select ONE answer:
- increase spending on expansion projects
- attract demand from the rapidly expanding Russian market
- increase the price of its steel
- reduce the productivity of its workers
Show the workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Business Studies KS4 & KS5 classes
The answer is 2
- Not correct – expansion will increase potential capacity and therefore reduce capacity utilisation.
- Correct – capacity utilisation is the percentage of a firm’s potential output that it is currently used with the formula that Capacity utilisation = (Current output X 100) / Maximum output, and where capacity which is not being fully utilised is 30%. Additional demand from Russia will increase the use of Staffordshire Steel’s production facilities because they will have to produce more steel. This increased output will therefore move Staffordshire Steel closer to its potential capacity.
- Not correct – if they increases its prices, demand is likely to fall, leading to a fall in capacity utilisation.
- Not correct – reducing productivity of workers will make them less competitive as the labour cost of producing steel will increase.
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