Question

IN the economic order quantity model, if carrying costs increase while all other costs remain unchanged, the number of orders placed would be expected to:_______
a. increase.
b. decrease.
c. remain unchanged.
d. change without regard to carrying costs.

Answer 1

Answer:

b. decrease

Explanation:

In the EOQ model, if carrying costs increase while all other costs remain unchanged, the number of orders placed would be expected to decrease.

Carrying cost is placed in denominator of the EOQ formula hence as we increase denominator the total quantity will fall. If the carrying cost is high, then we would place lesser order to reduce such costs.

Also, if carrying costs decrease while all other costs remain unchanged, the number of orders placed would be expected to decrease because there is already excess of inventory due to which the new orders have to be decreased to utilize the already pending inventory.