In Some Inventory Models, the Optimal Behaviour Occurs Where Ordering

question 54

Essay

In some inventory models, the optimal behaviour occurs where ordering costs and carrying costs are equal to one another. Provide an example of a model where this "rule" does not hold; explain how the model's results are optimal anyway.

---

Definitions:

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, widely used in finance to assess the volatility of an investment.

Volatility

Volatility refers to the degree of variation of a trading price series over time, typically measured by the standard deviation of returns.

Section Modulus

A geometric property of a cross section, relevant in the design and analysis of beams, that reflects its capacity to resist bending.

Tensile Strength

The highest stress that a material can withstand without separating; expressed in psi. In steels, tensile strength typically exceeds yield strength by about 10 percent.