It May Make Sense for Companies to Hold Larger Quantities

question 22

True/False

It may make sense for companies to hold larger quantities of inventory because of the benefits of economic purchase orders.

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Definitions:

Average Variable Cost

The variable cost per unit of output, obtained by dividing the total variable cost by the total output.

Marginal Cost

The change in total production cost that comes from making or producing one additional unit.

Shut Down

A short-term decision by a firm to cease operations and production when the market price is below its variable costs, to minimize losses.

Economic Loss

A situation where total costs exceed total revenues, leading to a negative economic profit.