The Purpose of Safety Stock Is to

question 43

Multiple Choice

The purpose of safety stock is to

• A) replace failed units with good ones
• B) eliminate the possibility of a stockout
• C) eliminate the likelihood of a stockout due to erroneous inventory tally
• D) control the likelihood of a stockout due to the variability of demand during lead time
• E) protect the firm from a sudden decrease in demand

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Definitions:

Concentrated Industry

characterizes a market structure where a few firms dominate the industry, often leading to reduced competition.

Cournot

A model of duopoly in which two firms assume the output of the other, deciding their own levels of production to maximize profit, leading to a strategic equilibrium.

Contestable

Pertaining to a market condition where the entry and exit of firms are costless or have low barriers, enabling potential competition to limit the market power of existing firms.

Price Competition

A market situation where businesses compete primarily on the price of their products or services.