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Many companies experience variable demand for their products. This is probably most noticeable in products that have seasonal demand patterns, such as snow blowers or lawn mowers, but demand for other products may vary appreciably throughout the year. In such cases, companies face several different options in determining how to meet demand. Generally, these options fall into two “pure strategies” — a chase strategy and a level strategy. Under the chase strategy, production is varied as demand varies. With the level strategy, production remains at a constant level in spite of demand variations.

The use of a chase strategy requires that a company have the ability to readily change its output level, which means that it must be able to readily change its capacity. In some industries where labor is the major determinant of capacity, and where additional labor is readily available, such changes may be feasible. However, other resources such as equipment and facilities are also often a determ ...