Final answer:
The absolute maximum production activity of a manufacturing firm is known as its capacity, closely related to an economy's potential GDP, where production is maximized with all resources fully employed.
Step-by-step explanation:
The absolute maximum production activity of a manufacturing firm is referred to as its capacity. When a firm maximizes its capacity, it's operating at the point where its machines and factories are running at full potential, typically signified by an economy operating at its potential GDP or full-employment GDP. This scenario is similar to the concept of an aggregate supply curve becoming nearly vertical, indicating that higher prices for outputs cannot encourage additional output due to the full employment of inputs such as labor and machinery. To achieve such production efficiency, firms often leverage economies of scale, where increasing the quantity of output results in lower average costs per unit, a principle operational in large warehouse stores like Costco and Walmart.