An increase in forecast accuracy
A)decreases both the overstocked and understocked quantity and decreases a firm's profits.
B)decreases both the overstocked and understocked quantity and increases a firm's profits.
C)increases both the overstocked and understocked quantity and decreases a firm's profits.
D)increases both the overstocked and understocked quantity and increases a firm's profits.

Question

Quizplus · Accepted Answer

An increase in forecast accuracy reduces uncertainty and enables a firm to better match supply with demand. This leads to a decrease in both overstocked and understocked quantity, resulting in a reduction in costs associated with excess inventory and lost sales due to stockouts. This ultimately leads to an increase in a firm's profits.

An Increase in Forecast Accuracy