Amazon forecasts the following demand for a product (in thousands of units) over the next five years.
Year 1 2 3 4 5
Forecast demand 54 57 61 63 66
The company outsources its manufacturing to Chip manufacturing. Chip has six machines that operate on a two-shift (8 hours each) basis. Fifteen days per year are available for scheduled maintenance of equipment with no process output. Assume there are 240 workdays in a year. Each manufactured good takes 22 minutes to produce.
a. What is the capacity of the factory?
b. At what capacity levels (percentage of normal capacity) would the firm be operating over the next five years based on the forecasted demand? (Hint: Compute the ratio of demand to capacity each year.)
c. Does the firm need to buy more machines? If so, how many? When? If not, justify.