Matthew Liotine‘s Dream Store sells beds and assorted supplies. His best-selling bed has an annual demand of 400 units.Ordering
cost is $40; holding cost is $5 per unit per year.a) To minimize the total cost, how many units should be ordered each time an order is placed?b) If the holding cost per unit was $6 instead of $5, what would be the optimal order quantity?
1 answer:
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Answer:
diminishing marginal rates of substitution.
Explanation:
Based on the information provided within the question it can be said that the principle that captures this is known as diminishing marginal rates of substitution. Like mentioned in the question this refers to the fact that a consumer chooses to replace a product instead of actually buying more. This decreases as you move down the indifference curve as shown below.
