Fred's Fabrication Has the Following Aggregate Demand Requirements and Other

question 4

Essay

Fred's Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.
$\begin{array}{|l|l|l|l|}\hline\text { Quarter}& \text { Demand }& \text { Previous quarter's output } & 800 \text { units } \\\hline 1&700&\text { Beginning inventory } & 0 \text { units } \\\hline2&900&\text { Stockout cost } & \$ 100 \text { per unit } \\\hline3&1200 &\text { Iniventory holding cost } & \$ 10 \text { per unit at end of quarter } \\\hline4&600 &\text { Hiring workers } & \$ 20 \text { per unit } \\\hline &&\text { Laying off workers } & \$ 40 \text { per unit } \\\hline&& \text { Subcontracting cost } & \$ 200 \text { per unit } \\\hline&& \text { Unit cost } & \$ 100 \text { per unit }\\\hline\end{array}$

Which of the following production plans is better: Plan A-chase demand by hiring and layoffs; Plan B-pure level strategy, or Plan C-700 level with the remainder by subcontracting?

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Definitions:

Complementary Resource

A resource or product that enhances or is necessary for the use of another resource or product, such as printers for computers.

Substitution Effect

The alteration in buying habits caused by shifts in relative prices, prompting consumers to swap out higher-priced goods for more affordable options.

Output Effect

The change in total revenue resulting from selling more units of a product, potentially influenced by changes in price or quantity produced.

Substitute Resource

Alternative resources or inputs that can be used in place of another in the production process to produce a similar type of output.