Question

Greyon Spinning Mills Inc. owns 600 spinning machines. Out of these, only 500 are used in a given year. Given this information, the utilization of spinning machines at Greyon Spinning Mills Inc. is _____. a. 0.83 b. 1.2 c. 0.75 d. 1

Answer 1

Answer:

A) 0.83

Explanation:

the capacity utilization rate of spinning bikes = bikes used / total number of bikes available = 500 / 600 = 0.83

The capacity utilization rate measures the realized economic output. It is calculated by dividing total output by total level of potential output. Economic measurements always include opportunity costs, for example, the missed opportunity costs of unused spinning bikes = (1 - 0.83) x total number of bikes = 100 unused bikes or lost economic revenue.