Question

As the ratio of the cost of overstocking to the cost of understocking gets larger:________

A) the optimal level of product availability decreases.
B) the optimal level of product availability becomes irrelevant.
C) the optimal level of product availability remains stable.
D) the optimal level of product availability increases.

Answer 1

A) the optimal level of product availability decreases.

Step-by-step explanation:

The optimal level of product availability decreases when the ratio of the cost of overstocking to the cost of understocking increases or gets larger.

The optimal level of product availability is defined as the ratio of cost of overstocking to the cost of understocking.

Therefore, when the ratio of cost of overstocking to the cost of understocking gets larger, the optimal level of product availability decreases and vice-versa.

Answer 2

D) the optimal level of product availability increases.

Step-by-step explanation:

Overstocking deals with making a product available in excess quantity.

Under stocking deals with making a product available in insufficient quantity.

As the ratio of the cost of overstocking to the cost of understocking gets larger, the optimal level of product availability increases. This is self explanatory as overstocking being more than understocking means there will be more product available.