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What Is Productive Capacity?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 29 September 2016
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Productive capacity is the maximum amount of products and services that can be produced, given a set of resources and constraints like environmental concerns. It may also be known as production capacity in some regions of the world. It can be difficult to measure this, as it relies on a number of factors that are not always readily observable or quantifiable. Nations typically want to know their overall productive capacity and also want statistics on individual industries for additional reference.

An example of productive capacity can be seen in forestry. In the simplest terms, the productive capacity of a given forest is the volume of trees on the land. However, this is not sustainable. If a forester cuts down all the trees, there will be no more to harvest until a new generation of trees can grow. Furthermore, the loss of the trees might limit habitat for animals or interfere with human recreational activities.

When foresters estimate productive capacity, they have to think about how to use the forest sustainably. They want to get the most possible wood out of it, without causing problems in the future and inadvertently creating environmental issues. They might select several different harvest rates and run them through models to see which would balance the conflicting needs in a given situation. This can turn out a more realistic estimate of how much wood could be safely extracted each year.

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Nations estimating overall productive capacity may do so with the goal of identifying industries that are not at capacity. Analysts may make recommendations to improve efficiency and functionality, like grants to help companies buy new equipment. The regulatory climate may also be a topic of consideration. Companies might have difficulties with ramping up production because of restrictive laws, for example, and a relaxation of regulations might allow them to become more productive.

Economists are usually the most interested in productive capacity. They may be able to produce several estimates to create a good overall picture. Some might rely on more conservative constraints to ensure sustainability, while others might focus more on the maximum extractability, and less on the need to address sustainability concerns. These estimates can also offer insight into how capacity might shift if one or more factors changed. Adding a second shift of workers could double production, for instance. In the forestry example, better milling equipment might result in less waste in timber processing, upping output without needing to cut down more trees.

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