13. We know that when our demand forecast increases, the incentive is to increase the lot size. The reason for this is:

a. An increase in demand will likely increase need for more replenishment orders. Since this is costly, it is cost minimizing to increase the lot size.

b. An increase in demand reduces the cost of holding inventories because inventories can be drawn from more quickly. Therefore, the lot size needs to increase.

c. An increase in demand increases the likelihood of stock outages. To counter this, the lot size needs to increase.

d. An increase in demand will likely increase lead times, which is costly. So the lot size needs to increase to reduce the pressure on lead times.