Why is it important for organizations to accurately estimate the demand for a good or service?

• A. Organizations estimate demand to determine the legal status of their products.
• B. Demand estimation is primarily used to set employee wages.
• C. Accurate demand estimation helps organizations optimize production and avoid excess inventory or shortages.
• D. Estimating demand is only necessary for government agencies, not private organizations.

Answer: (C)

Verified step by step guidance

1. Understand that demand estimation is a critical process where organizations predict the quantity of a good or service consumers will purchase at various prices over a certain period.
2. Recognize that accurate demand estimation helps organizations plan their production levels effectively, ensuring they produce neither too much nor too little of a product.
3. Consider that producing too much can lead to excess inventory, which increases storage costs and potential waste, while producing too little can result in shortages, lost sales, and dissatisfied customers.
4. Acknowledge that demand estimation also assists in resource allocation, budgeting, and setting marketing strategies, all of which contribute to the overall efficiency and profitability of the organization.
5. Note that demand estimation is relevant for all organizations involved in producing or selling goods and services, not just government agencies, and it is not directly related to determining legal status or setting employee wages.