Chapter 6
I. Characteristics of short-term decisions
a. Fixed supply of capacity
i. Capacity is maximum volume of activity that a company can sustain with
available resources.
ii. Not easy to change capacity levels; thus a long term decision.
iii. Businesses must do the best with set capacity when dealing with
“uctuations in demand = results in either excess demand or supply
1. Excess Supply
a. Reduce prices
b. Special promotions;
process special orders
c. Use extra capacity to
make production in
house
Short-term decisions are responses to
a mismatch between supply (capacity)
and demand. During demand
downturns, capacity utilization goes
down. During demand upturns, there
is a shortage of available capacity.
