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Chapter 1: Q. 5-1PE (page 128)

The level of capacity for which a process was designed

and at which it operates at minimum cost.

Short Answer

Expert verified

Best operating level.

Step by step solution

01

Best operating level

Thebest operating levelis the ability under which the system is built, as well as consequently the production capacity at which the overall price per unit is minimal.

02

How best operating level operates at minimum cost

Thebest operating levelfor such a facility is the highest production volume only with the lowest average price. Companies strive to operate as near to this value as possible. If demand is continuously higher than the optimum processing level, capacity is increased to bring costs closer to the best working level.

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