> Consider a company that manufactures its product on lathes. Assume that it has ten lathes that can just meet production requirements. Assume also that each lathe wears out in ten years and that the company has its investment plans so well organized that one lathe is replaced every year. Now consider what will happen if there is a 10 percent increase in demand for the product. The plant will need eleven lathes to meet production requirements. It will have to buy two lathes: one as a replacement for the worn-out lathe and a second to increase capacity. Thus a 10 percent increase in the demand for the product has produced a 100 percent increase in the demand for lathes.
The 100% increase doesn't seem to make sense in this example.
The 100% increase doesn't seem to make sense in this example.