Question

What is an example of a situation in which the cost of capacity is substantially more than the cost of waiting? What would the waiting line look like in that situation?

Answer 1

Answer:

Cost of Capacity, Cost of Waiting and Waiting Lines which are concepts indicated in the question speaks to Queuing Theory under Operations Management.

The goal of studying this theory simply relates to Optimizing Efficiency.

Let's define the concepts highlighted in the question.

Capacity cost is defined as the total amount of expenses incurred by an organization to provide for or increase its ability to conduct business operations. It can also be referred to as the cost of service.

Cost of Waiting on the hand within the context indicated above is how much it costs a business to keep customers waiting.

The more customers leave without making a purchase or do not return because of frustrating wait times, the higher the waiting cost.

Waiting Line -  This is simply a line of people waiting to be attended to, or access a product or service. It could also refer to Assembly Line. Or simply, a queue.

Explanation:

Cost of Waiting plus Cost of Service equals Total Cost.

An optimized situation is where the total cost is at it's lowest. Reducing capacity may reduce costs of service, but cause an upward spike loss of sales due to lost customers.

Excessive capacity, on the other hand, will reduce the loss of sales due to the loss of customers but lead to an increase in operating costs.

To answer the questions, an example of a situation in which the cost of capacity is substantially more than the cost of waiting is given below:

a) If One ATM can serve 3 customer in 2 Minutes, and ATM users arrive the ATM Gallery at the rate of 3 customers every 4 minutes, then haveing 5 ATM Machines installed at such a location would translate to higher cost of capacity in relation to cost of waiting (Assuming that the cost of purchasing the machines and profit accruable from the ATM use charges are not factors under consideration)

b) the waiting line in such a condition would be substantially smaller than an optimised gallery or close to zero

Cheers!