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A major component of the costs of many large firms is the cost associated with ordering and holding inventory. If the yearly demand for the good is D and the size of each order placed is q then the number of orders N in each year is:
N = D / q
If the cost of placing each order is C0 then the cost of placing all N orders is:
OC = C0N
The second component is the carrying or handling cost of an inventory. Under the assumption that the average number of items in stock is q/2 and with cost of each item set at p , the value of this average number of items is p(q/2). The carrying in this situation is the proportion Cn of this value:
The third component of total costs is simply the purchase cost of all the items, or . PC = pD = Assuming that C0, D, Cn and p are constant, what is the optimal order size q?
ALL SELLERS MAY BE TEMPTED TO RAISE THE PRICE OF WHAT THEY SELL, BUT A NEGATIVE UNINTENDED EFFECT OF RAISING THE PRIE COULD BE______ IN UNITS SOLD LARGE ENOUGH TO _____THEIR TOTAL
what happens when there is changes in the quantity supply?
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