As capacity utilization in an economy rises:
A)firms sell their fixed assets to remain solvent.
B)the gap between the potential output and actual output widens.
C)firms reduce their demand for labor.
D)employment of inputs by firms declines.
E)firms add more factories and machines and increase output.

Question

Quizplus · Accepted Answer

As capacity utilization increases, firms are reaching their maximum production levels with their existing factories and machines. To meet the higher demand for their products, firms will invest in expanding their production capacity by adding more factories and machines, ultimately increasing output.

As Capacity Utilization in an Economy Rises