Activity 5.5.3 – HOTELS’ EXCESS CAPACITY
1. Define the term ‘capacity utilization’.
Capacity utilization refers to the proportion of a business’ output level in comparison
with its maximum output level.
2. Explain two factors that could account for falling rates of capacity utilization in
London hotels.
- More competitors, In other words, the establishment of more hotels in London
would provide more options for tourists. This could eventually decrease the
demand and ultimately affecting the capacity utilization.
- With the rise in price of the hotel rooms could cause potential customers to be
reluctant into booking a hotel room in London hotels. This, in turn, reduces the
demand, leaving businesses with no choice but to decrease their capacity
utilization to precent excess capacity.
3. Analyze two possible consequences of rising capacity utilization in Istanbul’s
hotels.
- If the demand of Istanbul hotels is less than the capacity at which the hotel is
operating, additional costs will have to be paid with no benefit in return. For
instance, operating at high capacity when the demand is not that high would
cause hotels to spend more money paying their employees when they are not
doing as much job as they are supposed to.
- As seen from the table, the average room price increases. This can be seen as
disadvantageous for the customers as they will have to pay more for getting the
same service.
1. Define the term ‘capacity utilization’.
Capacity utilization refers to the proportion of a business’ output level in comparison
with its maximum output level.
2. Explain two factors that could account for falling rates of capacity utilization in
London hotels.
- More competitors, In other words, the establishment of more hotels in London
would provide more options for tourists. This could eventually decrease the
demand and ultimately affecting the capacity utilization.
- With the rise in price of the hotel rooms could cause potential customers to be
reluctant into booking a hotel room in London hotels. This, in turn, reduces the
demand, leaving businesses with no choice but to decrease their capacity
utilization to precent excess capacity.
3. Analyze two possible consequences of rising capacity utilization in Istanbul’s
hotels.
- If the demand of Istanbul hotels is less than the capacity at which the hotel is
operating, additional costs will have to be paid with no benefit in return. For
instance, operating at high capacity when the demand is not that high would
cause hotels to spend more money paying their employees when they are not
doing as much job as they are supposed to.
- As seen from the table, the average room price increases. This can be seen as
disadvantageous for the customers as they will have to pay more for getting the
same service.
