If demand increases by a factor of k, by what factor does the optimal lot size increase?
Understand the Problem
The question relates to inventory management and the Economic Order Quantity (EOQ) model. The EOQ model helps determine the optimal order quantity to minimize total inventory costs. The question explores how the optimal lot size (EOQ) changes when demand increases by a factor of 'k'. We need to identify the mathematical relationship between the change in demand and the resulting change in optimal lot size.
Answer
The optimal lot size increases by the square root of k.
If demand increases by a factor of k, the optimal lot size increases by a factor of the square root of k.
Answer for screen readers
If demand increases by a factor of k, the optimal lot size increases by a factor of the square root of k.
More Information
This relationship is derived from the Economic Order Quantity (EOQ) model, which balances ordering costs and holding costs to determine the optimal lot size. The EOQ formula includes the square root of demand, leading to this relationship.
Tips
A common mistake is assuming a linear relationship (i.e., if demand doubles, lot size doubles). Remember the square root relationship from the EOQ formula.
Sources
- Solved If demand increases by a factor of k, the optimal | Chegg.com - chegg.com
- If demand increases by a factor of k, the optimal lot size... (1 Answer) - transtutors.com
- Optimal Lot Sizing Decisions: Practical Example Analysis - Course ... - coursesidekick.com
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