The installed capacity in forex is the maximum yield that can be produced in a given period, using the resources that are available at a given time. It is an essential aspect of the production system; it is an efficiency measure that can be adjusted in such a way that production is by demand.
If the demand is greater than the capacity, then the customer cannot be supplied. On the other hand, if the capacity is higher than the need, you will have many inactive workers and machines, which is not good.
Concept of Capacity Utilization
The concept of installed capacity is also frequently used in economics to describe an entire sector of activity or an entire region.
When the volume of production is less than the installed capacity, factor unemployment is said to exist. As production volume approaches installed capacity, full employment is said to be. In short, based on the principle of sufficient demand, we can say that companies produce according to the expectations of their sales.
Undoubtedly, if these are greater than expected, companies will adjust their production. In other words, companies will be encouraged to increase their production. Given their installed capacity and their technology, the companies will do so. They will probably incorporate the use of additional human resources, constituting an increase in the level of employment.
Low use of installed capacity means underutilization of infrastructure and, therefore, higher cost per unit. This element is decisive in the competitiveness of the product or service compared to other competitors in the market. In general, there is talk of oversizing compared to the actual size of demand.
The use of installed capacity depends on the quantities produced. It means the occupation of the infrastructure generates the goods and services for which it was designed.
Calculation of Utilization Capacity
For the calculation of the use of the installed capacity in the forex, the maximum production that each sector can achieve with the current installed capacity is taken into account. It takes into account technical criteria. Example: potential use of production plants using as many shifts as possible and the interruptions necessary for proper maintenance.
Usually, the installed capacity is not used in its entirety. Some goods are used only partially since they have a higher potential than other capital goods. When there are situations of recession or crisis, the utilization capacity rate tends to decrease. It increases idle or unused capacity.
This last term is wrongly used to refer to natural resources that are not in a position to exploit at any given time. It can happen because of cost or due to the narrowness of the market. Thus, some lands should not be used because their Yields are very poor. They would produce goods at a cost higher than the market can accept.