Final answer:
c) Effective capacity.
The performance measure that assumes all production factors are operating perfectly is ideal capacity. It represents the theoretical maximum output under perfect conditions, distinct from the realistically achievable optimal capacity.
Step-by-step explanation:
A performance measure that assumes all production factors are operating perfectly is referred to as ideal capacity. When discussing capacities, ideal capacity denotes the maximum output a firm could achieve under perfect conditions with no downtime, delays, or inefficiencies.
This concept is grounded in the belief that, in a perfectly competitive market, firms can achieve productive efficiency, meaning they can produce at the lowest possible average cost, which correlates with the minimum of the long-run average cost curve.
Optimal capacity, on the other hand, is reached when a firm is operating efficiently, but also considering realistic operational constraints like maintenance and regular breaks for workers.
The correct answer is c) Effective capacity.
Effective capacity is a performance measure that assumes all production factors are operating perfectly.
It represents the maximum achievable capacity given the current production conditions. For example, if a factory has the capability to produce 100 units per hour, but due to some factors like machine breakdowns or employee inefficiency, it can only produce 80 units per hour, then the effective capacity is 80 units per hour.