Question

If optimal capacity of a university is 4000 students and the current students is 3500 students, implement the concept of economics to scale capacity strategy to determine the maximum number allowed to be accepted for the new academic year

Answer 1

Since the optimal capacity of university is given as 4000 students and the current students are 3500 students, there is excess capacity ( underutilized) of 4000- 3500= 500 students.

Optimum capacity is regarded as the manufacturing rate with the lowest possible cost. When a company is at optimum capacity, it produces the most it can with the smallest amount of cost.

According to economics of scale capacity, when a plant is used below its optimal production capacity, increases in its degree of utilization bring about decreases in the total average cost of production. That is, it implies that a company's cost per unit is lower when it produces at a larger volume. Thus operating at underutilized levels increases average costs of operation.

Hence the maximum number of students to be allowed acceptance for the new academic year should be exactly equal to the underutilized capacity at present. Any number of students below or above the optimum capacity will resut in higher average costs of operation. Since the underutilized capacity is equivalent to 500 students, 500 students is the maximum number to be accepted for the new academic year.