Firms Should Maintain Capacity Utilization at 100% at All Times

question 4

Multiple Choice

Firms should maintain capacity utilization at 100% at all times to minimize costs:

• A)Yes, this is the right approach
• B)No, since in practice 100% utilization is already beyond normal practical utilization, and increases costs.
• C)No: in practice this is not feasible, and leaves no room for contingencies
• D)Both b and c above

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace for loans, deposits, and investments, often influenced by central bank rates and economic conditions.

Contract Rate

The agreed upon rate of interest to be paid on a loan or financial transaction as outlined in a contract.

Premium

The amount by which the cost of a financial instrument or insurance policy exceeds its face value or principal.

Interest Expense

Financial obligations an entity must meet for the use of borrowed capital over a set period.