Economic Order Quantity

Question 1

Economic order quantity

Answer 1

EOQ is an economic decision model that calculates the optimal quantity of inventory to order based on a
restrictive set of assumptions.

Objective
• Determine optimal order quantities -> minimize sum of total cost (order and inventory)

Criticism: Assumptions too strict, to hold true in practice

Question 2

Criticism

Answer 2

Assumption of constant demand per period is not realistic -> Demand and production
depend on markets

Changes in demand: competition, product life cycle, technical progress, subsidies

Assumption of constant purchase prices is not realistic (price reductions / price increases,
discounts for early payments etc.)