A Toy Manufacturer Accumulates Inventories Because of the Uncertainty of the Demand

question 59

Multiple Choice

A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the motive for holding inventories.

• A)production smoothing
• B)inventories as a factor of production
• C)stock-out avoidance
• D)work in progress

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Definitions:

Marginal Cost

The enhancement in overall pricing due to the generation of an extra unit of a good or service.

Cost Curves

Graphical representations used in economics to show the total cost of producing different quantities of output, helping businesses determine optimal production levels.

Average Fixed

Assuming it's intended as "Average Fixed Costs," it is the fixed costs divided by the quantity of output, representing the cost per unit that does not change with the level of production.

Average Total

Typically refers to the average total cost, which is the total cost of production divided by the number of goods produced.