Producing to Stock or to Order

Organizations can produce to stock or produce to order. One that pro- duces to stock forecasts its demand and cost and produces output to store in inventory. Medical supply manufacturers are an example of this sort of organization. More commonly in the healthcare sector, firms produce to order. They also forecast demand and cost, but they do not produce any- thing up front. Instead, they set prices designed to maximize profits and wait to see how many customers they attract. Hospitals are an example of this type of organization. This distinction is important because discussions of profit maximization are usually framed in terms of choosing quantities or choosing prices.