What Is the Average Inventory Level, Based on EOQ, for a Firm

question 7

Multiple Choice

What is the average inventory level, based on EOQ, for a firm that has annual sales of 2,500 units, costs per order of $45, and carrying costs of $5 per unit?

• A)35
• B)75
• C)106
• D)237

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Definitions:

Total Cost Function

The total cost function describes the total cost of production as a function of the quantity of output, including both fixed and variable costs.

Variable Factor

In economics, it refers to any input whose quantity can be changed in the short term to affect production levels.

Increasing Returns to Scale

A situation in which output increases by a greater proportion than the increase in inputs used.

Average Costs

The total cost of production divided by the total quantity produced, reflecting the cost per unit of output.