The concept of plant and equipment capacity is widely used in analyzing economic developments; but currently available measures of capacity show major discrepancies. The present paper reviews the uses, the definition, and the techniques of measuring capacity. A review of the principal uses suggests that capacity is intended to serve as an indicator of short-run cost conditions. This purpose in turn suggests certain criticisms of common definitions of capacity and leads to a new definition in terms of the percentage difference between marginal and average cost. The uses and the definition are the basis for a number of observations relating to techniques used to measure capacity.