Spoilage occurs when the capacity reserved for higher price buyers is wasted because demand from the higher price segment does not materialize.

Question

Quizplus · Accepted Answer

Spoilage refers to the loss incurred when the higher-paying segment of customers does not materialize, leading to unused capacity that is reserved for them. As a result, the firm may have to sell the products to lower-paying customers at a discounted rate, leading to lower revenue and profit margins. Therefore, the statement is true.

Spoilage Occurs When the Capacity Reserved for Higher Price Buyers