Why is the capacity decision important? The capacity decision is important for several reasons:$1)$ capacity costs represent a large portion of fixed costs$2)$ a facility of the wrong size means that costs are not as low as they could be$3)$ If a facility is too large, and portions of it remain idle, the firm's costs are too high because of the higher fixed costs$4)$ If a plant is too small, costs are again higher than they might be due to inefficiencies of working in cramped and crowded spaces$\mathrm{.}5)$ a facility too small may lead to lost sales, perhaps even lost markets