A firm will encounter short periods of over- and under-utilization with which of the following capacity expansion approaches?
A)One large capacity increase
B)Small capacity increases that match demand
C)Small capacity increases that lead demand
D)Small capacity increases that lag demand

Question

Quizplus · Accepted Answer

Small capacity increases that match demand are the best choice because they allow for flexible capacity management and the firm can adjust its capacity based on changes in demand. One large capacity increase may lead to over-utilization initially but could result in periods of under-utilization later. Small capacity increases that lead demand may result in over-utilization, while small capacity increases that lag demand may lead to under-utilization.

A Firm Will Encounter Short Periods of Over- and Under-Utilization