Chapter 5 Review and Discussion Questions

Chapter 5 Review and Discussion Questions - Review and...

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Review and Discussion Questions 1. What capacity problems were encountered when a new drug was introduced to the market?? The first two problems are the high capital cost of capacity and the opportunity cost of restricting investments in other facilities. These problems are exacerbated by uncertainty over patent infringement, competitor’s response and that there is only a 45% probability of launching the product. If the product is launched it is possible to lose sales because there is not sufficient capacity to meet customer demand. The estimates of demand varied by 600% and if actual sales are at the high end or the low end of the estimates the project will be a financial disaster unless the correct capacity decision is made. 2. List some practical limits to economies of scale; that is, when should a plant stop growing? The obvious answer is that a plant should stop growing when its long-run average cost curve hits the inflection point. However, since this determination is often difficult to make (in the short run), other factors such as coordination problems, excess capacity, capacity imbalance, and market shifts indicate a need to consider setting capacity limits. 3. What are some capacity balance problems faced by the following organizations or facilities? a. An airline terminal. Waiting areas, distances from boarding gates, ground crew requirements, landing strips. b.
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Chapter 5 Review and Discussion Questions - Review and...

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