Answer to Question #84619 in Macroeconomics for Raju

Question

"If a firm produces 1000 shirts (finished products), expecting to keep an inventory of 100 shirts at the end of the year." Here Why a firm keep an inventory of 100 shirts ? What is the need of it? If the firm sold all 1000 shirts there is no need to keep inventory right? If we carry unsold of those 100 shirts to next year, who will going to buy it because of they are already old products compared to coming year there are new products produced?

Answer 1

Inventory facilitates availability of products for sale. Thus, the company keeps an inventory of 100 products to prevent the sale of shirts that have run out of stock. However, in case the company fails to sell the 100 shirts in the following year, consideration of giving bulk purchase discounts is key to minimize losses.