Question

holding all other parameters fixed, an increase in which of the following parameters in the economic order quantity (eoq) model will not always increase total annual ordering and holding cost?

Answer 1

In the EOQ model, an increase in demand will lead to different outcomes in terms of total annual ordering and holding cost, depending on whether the industry is a constant-cost, increasing-cost, or decreasing-cost industry.

Step-by-step explanation:

In the context of the Economic Order Quantity (EOQ) model, holding all other parameters fixed, an increase in demand will lead to different outcomes depending on the industry's cost structure. Typically, in a constant-cost industry, when demand increases and supply meets it adequately, the equilibrium price stays stable as the quantity sold increases. This is because the supply increase is equal to the demand increase. However, in an increasing-cost industry, if sellers are unable to meet the increase in demand due to scarcity of inputs or rising wages, the equilibrium price will rise. Conversely, in a decreasing-cost industry, sellers can often increase supply easily in response to increasing demand, thanks to new technology or economies of scale, which can result in a declining equilibrium price.