A common measure of productivity, as explained in this chapter and as used by many business and trade organizations, including the U.S. Bureau of Labor Statistics, is the ratio of output to input, where input is typically measured in units of materials, labor hours, or related measures. An alternative is to use the ratio of capacity available to capacity utilized. For example, the amount of capacity in the U.S. manufacturing industries has almost doubled over the last two decades. However, the rate of capacity utilization (output/capacity available) has fallen slightly over this period of time, with a steep drop in 2009 followed by slow increases in 2010 and 2011. Some would say that this measure gives a better picture of productivity than the one we have used in the chapter.

Required

Compare the measure of productivity based on capacity utilization with the measure used in the chapter. Which measure do you think is most useful for assessing the state of the manufacturing sector of the economy? Explain briefly.