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How is capacity utilization computed, and what does it tell us?

How is capacity utilization computed, and what does it tell us?

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Capacity utilization in simple terms is the actual realization of the potential output of a firm in a given economy. It i generally used to measure the slack in the output of the firm at a given point of time in economy. The formula we can use to calculate capacity utilization is:-

Actual output / potential out put * 100.

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