Capacity Unused

Capacity Unused

Capacity, Unused. (a) Efficient use of resources or (b) waste, depending upon the reasons for its existence. Some capacity is left unused because the co-operating factors required to exploit it are more productive elsewhere; e.g. jungles, swamps, deserts and highlands are uncultivated, the oil sands of Canada undeveloped and thin seams of coal mined. Similarly capacity may be left unused, e.g. canals and branch railways, because of technical change which has discovered better methods. Some unused capacity consists of facilities available to meet fluctuations in demand. It yields a flow of 'availability' in the same way as a dinner suit in one's wardrobe or a pen in one's pocket; power stations are kept in service to satisfy the peak demand on only a few days in the year. Finally, some excess capacity may arise because firms acting independently overbuild to provide for a growing market. They may be aware of what is happening but each hopes to be more successful than the others. In so far as the firms that survive (in the absence of monopoly) are said to be the most efficient, the excess capacity may be regarded as the cost of the competitive process of discovering their identity.

There are two main circumstances in which unused capacity represents waste. First, in periods of depression: all the co-operating factors needed for production are available and failure to use them reflects the breakdown of the economic mechanism for co-ordinating them. Secondly, capacity may be kept idle by a monopolist in order to gain higher profits from higher prices with a lower turnover.

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