The Advantage of Building Up Inventory During the Off Season

question 29

Multiple Choice

The advantage of building up inventory during the off season to meet demand during peak seasons and keep production stable year round is

• A) very low inventory costs because no inventory needs to be carried from period to period.
• B) much of the expensive capacity would go unused during most months when demand was lower.
• C) in the fact that a firm could get by with a smaller, less expensive factory.
• D) in the fact that a firm could get by with a larger, more expensive factory.
• E) None of the above are true.

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Definitions:

Put Premium

A Put Premium is the price that the buyer of a put option pays to have the right to sell a specified amount of an underlying asset at a set price before the option expires.

Maximum Profit

The greatest possible gain that can be achieved from an investment, taking into account its cost and potential return.

Premium

An amount paid in excess of the face value or regular price, often associated with insurance costs, bonds above par value, or superior quality.

Strike Price

The predetermined price at which the holder of an options contract can buy (call) or sell (put) the underlying asset or security.