A tire manufacturer currently produces tires in small quantities as they are ordered. The company learns that it can reduce costs significantly by producing one type of tire at a time in large quantities and storing its unsold tires for later sale. Should the company switch to large quantity production?

Question

Quizplus · Accepted Answer

The company should only switch to large quantity production if the economies of scale in production are greater than the additional inventory carrying cost. This is because storing unsold tires will incur additional costs, and the cost savings from large quantity production should be greater than these carrying costs. Additionally, the option of providing tires as they are ordered may be impacted by the switch, as the company will have a stockpile of unsold tires. The other answer choices do not fully consider the costs and benefits of the switch to large quantity production.

A Tire Manufacturer Currently Produces Tires in Small Quantities as They