Uncertainty of demand and price

Question

Quizplus · Accepted Answer

Uncertainty of demand and price means that a company cannot accurately predict how much of a product they will need to produce or sell, and at what price. This creates a risk for the company in terms of investing in fixed production capacity, which may lead to either underutilization or overutilization of the capacity. Building flexible production capacity at a plant allows the company to adjust production levels and mix of products to match actual demand, minimizing the risk of underutilization or overutilization. Therefore, uncertainty of demand and price drives the value of building flexible production capacity at a plant.

Uncertainty of Demand and Price