A Company Recently Lowered Its Service Performance from 99 Percent

question 23

Multiple Choice

A company recently lowered its service performance from 99 percent product availability to 97 percent product availability.The change saved the company exactly $1 million per year in inventory carrying cost.Senior management now wants to lower the service level to 95 percent from 97 percent.Such a further change is likely to save:

• A)Less than $1 million.
• B)Exactly $1 million.
• C)More than $1 million.

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Definitions:

Principal-agent Problems

Situations where there is a conflict of interest between a principal (such as an owner or shareholder) and an agent (such as a manager), due to diverging goals or asymmetrical information.

Industrial Regulation

Government rules and regulations aimed at controlling the activities, standards, and behaviors within specific industries to ensure fairness, safety, and competition.

Natural Monopoly

A market condition where a single supplier is most efficient in providing goods or services due to high fixed or startup costs.

Industrial Regulation

The government policies and rules designed to control or direct economic activity and market forces within specific industries.