Answer to Question #204058 in Microeconomics for Mungadi Phumudzo

Question

On contrary, why should retailers such as fruit and veg not keep too much inventory? (10)

Answer 1

Small business retailers should avoid keeping too much inventory to avoid the risks of loss in case of natural calamities such as flood, fire among others, increased insurance premium is another reason why small business retailers should avoid bulk inventory since the insurers charge their premium based on the available stock as well as keeping inventory for long will force the retailer use more cash on paying their premiums. Nevertheless, the items may also become obsolete before it's sold resulting in huge losses to the retail business that lack enough cash to restart the business