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- Title
Capacity: An Integrated Micro and Macro Analysis.
- Authors
Winston, Gordon C.
- Abstract
This article describes an integrated micro and macro analysis of capacity. The purpose of the study was to describe capacity in a way that makes sense simultaneously at both micro and macroeconomics levels and shows why a firm would generate the familiar behavior with respect to its capacity that is expected from an economy with respect to aggregate capacity. In macroeconomics, capacity is defined as the maximum sustainable level of output that can be got when an economy's available resources are fully and efficiently employed, given tastes and technology. In microeconomics, capacity is defined in two aspects: engineering and economic capacity. Engineering capacity is the maximum output, giving a technical dimension to the concept. On the other hand, economic capacity is the most efficient level of output for the individual firm. In economic capacity, costs become important. The tact taken in this analysis is that macro capacity is a general equilibrium concept and in that general equilibrium, resource allocation is efficient when plants' capital stocks are idle much of the time. The implication of this analysis is that the most efficient, least cost, level of utilization for a firm will often be a good deal less than the maximum level of utilization which technically it could operate.
- Subjects
INDUSTRIAL capacity; PLANT capacity; MACROECONOMICS; MICROECONOMICS; ECONOMICS
- Publication
American Economic Review, 1977, Vol 67, Issue 1, p418
- ISSN
0002-8282
- Publication type
Article