The reserve capacity in administration is advocated on the ground that demand for a product will:

Modern economists are of the opinion that whenever a firm installs a plant, this plant should have some more capacity or reserve capacity to produce in addition to a specific level of output. On the basis of reserve capacity the producer can meet the seasonal and cyclical changes in the demand for his goods so that the demand for his goods may be rise in future. To meet this rise in demand the reserve capacity is necessary.}