"Example: Seating in a Ferris Wheel" - Read the example and make up a similar one to explain the difference between design capacity and effective capacity.

Capacity Part of choosing a process strategy includes understanding the capacity of the desired process. Capacity (measured in units per time) is the maximum possible output rate of a process, system, or facility. Capacity decisions have a strong effect on fixed costs, and also determine to what extent customer demand will be met. Example: Ford Assembly Plant Suppose a Ford plant has the capacity to assemble 65,000 vehicles per year. If annual demand is 70,000 vehicles, the plant will not be able to fully satisfy demand; there is a 5,000 vehicle shortage. If annual demand is 60,000 vehicles, the plant can satisfy demand without operating at full capacity; at full capacity there would be a surplus of 5,000 vehicles. Design and Effective Capacity In fact, there may be two different capacities to speak of in some organizations. First, there is the design capacity; the theoretical maximum output rate (in units per time) of a system under ideal conditions. However, in some industries a firm may not reasonably expect to be operating at design capacity but at a slightly lower, effective capacity; the capacity a firm may expect to achieve, given particular standards or scheduling in the industry. Example: Seating in a Ferris Wheel Suppose a Ferris Wheel at a carnival has 44 compartments (gondolas) that can each sit up to 6 people. So, the design capacity of the Ferris Wheel is 44x6 = 264 riders per run. However, not every gondola is always filled to capacity. For example, if a group of 5 guests arrive, and there are no single riders available to join them, then their gondola will seat only 5. Therefore, the effective capacity will be lower than the design capacity; perhaps something like 240 riders per run (about 91% of design capacity). When we speak of system performance, there are two useful measurements: Utilization and Efficiency. These both describe the percentage or degree to which a resource is being used, but one is measured out of the maximum possible usage whereas the other is measured out of expected usage. The definitions are as follows: Utilization = Actual Output / Design Capacity Efficiency = Actual Output / Effective Capacity