ECONOMICS

Detailed explanation-1: -In the simple EOQ model, the EOQ would rise if the ordering cost were to increase.

Detailed explanation-2: -EOQ will increase as the annual demand and the cost of ordering increase and it will decrease as the cost of carrying inventory and the unit cost increase.

Detailed explanation-3: -Also referred to as ‘optimum lot size, ’ the economic order quantity, or EOQ, is a calculation designed to find the optimal order quantity for businesses to minimize logistics costs, warehousing space, stockouts, and overstock costs. The formula is: EOQ = square root of: [2(setup costs)(demand rate)] / holding costs.

Detailed explanation-4: -The total amount of ordering costs that a business incurs will increase with the number of orders placed.

Detailed explanation-5: -As the order quantity increases, the average inventory and the annual cost of carrying inventory increase, but the number of orders per year and the ordering cost decrease. It is a bit like a seesaw where one cost can be reduced only at the expense of increasing the other.