Introduction: In this section we study a model in which a company wants to determine an order quantity such that the total inventory costs are minimized.
Model: The inventory costs in an Economic Order Quantity (EOQ) model are given by
$$TC(q)=\dfrac{cd}{q}+pd+\dfrac{hq}{2},$$
with parameters
Theorem: The optimal order quantity is $q=\sqrt{\dfrac{2cd}{h}}$.
Model: The inventory costs in an Economic Order Quantity (EOQ) model are given by
$$TC(q)=\dfrac{cd}{q}+pd+\dfrac{hq}{2},$$
with parameters
- $d$ the fixed annual demand for a product
- $c$ the fixed costs per order
- $p$ the price per unit
- $h$ the annual holding costs per unit
Theorem: The optimal order quantity is $q=\sqrt{\dfrac{2cd}{h}}$.