Question

If the EOQ assumptions hold, and if a firm orders the EOQ, the average inventory level over time should be:

a) Maximum
b) Minimum
c) Equal to zero
d) Constant

Answer 1

The average inventory level over time is constant if a firm orders the Economic Order Quantity (EOQ), as it balances the ordering and holding costs.

Step-by-step explanation:

If the Economic Order Quantity (EOQ) assumptions hold, and if a firm orders the EOQ, the average inventory level over time should be (d) Constant. EOQ is a supply chain management tool used to determine the optimal order quantity that minimizes the total inventory holding costs and ordering costs. The formula calculates the most economical number of items to order to minimize costs and meet customer demand without holding excessive inventory. Therefore, if a company orders the EOQ, the average inventory level remains constant because it represents the point where the ordering costs and holding costs are balanced. When the inventory drops to a certain level, known as the reorder point, the EOQ quantity is reordered, which maintains the inventory level on average.