Capacity cost - Capacity Cost is associated with the capabil | UPSC Civil Services Upsc Prelims Mains Exam Current Affairs GS Gk Tricks SSC CGL IAS IFS IPS EPFO PCS UPPCS MPPCS Bihar PCS

Capacity cost

- Capacity Cost is associated with the capability to produce and deliver a certain level of output.

- It is an expenditure or cost incurred by a company to expand its business operations.

- These costs may include items such as lease agreements on larger facilities, purchase and depreciation of new equipment, as well as increased costs to operate and maintain those larger or newer assets.

- For any business, it is difficult to avoid costs like insurance, rent payments, property taxes, depreciation on equipment, etc. These are examples of capacity costs.

Advantages

- This type of cost helps to ensure that the production costs are kept low while maximizing profits.
- Improves the quality of the product produced & enhances the efficiency of the processes.
- Helps reduce the amount of inventory held by a company, which can help to reduce overhead costs.

Disadvantages
- High cost of energy and infrastructure
- Limited access to capital
- Lack of reliable transportation networks