Why might a company choose to carry inventory?

• A. To meet unexpected increases in customer demand
• B. To eliminate the need for production altogether
• C. To avoid paying wages to employees
• D. To reduce storage costs to zero

Answer: (A)

Verified step by step guidance

1. Understand the concept of inventory in microeconomics: Inventory refers to the stock of goods a company holds to meet future demand or production needs.
2. Consider the reasons why a company might hold inventory. One key reason is to be prepared for fluctuations in customer demand, especially unexpected increases, ensuring they can fulfill orders promptly.
3. Evaluate the other options: eliminating production altogether is not feasible as inventory is a result of production; avoiding wages is unrelated to inventory decisions; reducing storage costs to zero is unrealistic since holding inventory usually incurs storage costs.
4. Recognize that carrying inventory acts as a buffer, allowing the company to maintain smooth operations and customer satisfaction even when demand spikes unexpectedly.
5. Conclude that the primary reason a company carries inventory is to meet unexpected increases in customer demand, ensuring availability of products when needed.