Capacity Utilization is a company or economy’s capacity represents the maximum amount of output it can produce. The rate of capacity utilization, therefore, represents the proportion of capacity that is actually used in production. When capacity utilization is high (so that a facility is being used fully or near-fully), pressure grows for new investment to expand that capacity. Also, high capacity utilization tends to reduce the unit cost of production (since capital assets are being used more fully and efficiently).
Definition