Sensitivity Analysis on the Economic Order Quantity (EOQ) Formula Can

question 147

Multiple Choice

Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories. Which one of the following questions is NOT answered by EOQ sensitivity analysis?

• A) What should happen to lot sizes if supply and lead- time uncertainty increase?
• B) How critical are errors in estimating demand (D), inventory holding cost (H), and setup cost (S)?
• C) What should happen to cycle inventory if the demand rate increases?
• D) What should happen to lot sizes if interest rates drop?

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Definitions:

Monopolistically Competitive

This term refers to market structures where many firms sell products that are similar but not identical, allowing for some degree of market power and product differentiation.

Externalities

Economic side effects or consequences that affect uninvolved third parties; can be positive or negative.

Positive Profits

Financial gains experienced by a firm when its total revenues exceed its total costs.

Brand Names

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