Question

Consider strategies for expanding capacity. Suppose you were to employ a single, large capacity increase. Which statement is the most accurate regarding this strategy?

a. This strategy waits until demand has increased to a point where additional capacity is necessary.

b. An advantage of using this strategy is that the fixed costs of construction and operating system setup need to be incurred only once.

c. When this strategy is used, there is always excess capacity and safety capacity to meet unexpected demand from large orders is provided.

d. This strategy aims to match capacity additions with demand as closely as possible.

Answer 1

c. When this strategy is used, there is always excess capacity and safety capacity to meet unexpected demand from large orders is provided.

Answer: When a single large capacity increase is employed it always tries to have a buffer for sudden large orders. It is essential to have buffer since the installation of a new facility immediately will lead to huge expenditure on the fixed cost.