Capacity utilisation is a measure of the extent to which an organization is using its available resources. It is calculated by dividing the actual output of a company by its potential output. For example, if a company has the capacity to produce 1000 widgets per month and it actually produces 800 widgets, its capacity utilisation would be 80%. This means that the company is using 80% of its available resources to produce the widgets. If the company were to increase its production to 900 widgets, its capacity utilization would increase to 90%.
At a macroeconomic level, capacity utilisation measures how much of the productive potential of the economy is being used. Utilisation falls during a recession leading to a rise in sparecapacity.
