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Strategic Response to Increased Demand
A bicycle manufacturing company, PedalFast Inc., currently produces 4,000 bicycles per month. The factory's maximum possible output, using all its equipment and running three full shifts, is 5,000 bicycles per month. The company receives a new, permanent order from a large retail chain that increases total monthly demand to 6,000 bicycles.
The Operations Manager argues, "We must immediately invest in a new production line. We cannot meet this demand with our current setup." The Sales Manager argues, "We should accept the full order and just run our current factory harder. We can make it work."
Evaluate the arguments of both managers. Which manager's assessment of the company's immediate production capability is more accurate? Justify your answer by first calculating the company's capacity utilization rate before the new order, and then explaining the relationship between the new total demand and the factory's maximum possible output.
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Introduction to Macroeconomics Course
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