The annual demand for an item is 40,000 units.The cost to process an order is $40 and the annual inventory holding cost is $3 per item per year.What is the optimal order quantity,given the following price breaks for purchasing the item?
a.What is the optimal behaviour?
b.Does the firm take advantage of the lowest price available? Explain.
Definitions:
Margin
The difference between the selling price of a product or service and its cost of production, or the amount of equity an investor has to deposit to borrow money for investing.
Futures Contracts
These are standardized legal agreements to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.
Buyers and Sellers
The participants in a market who determine the demand for and supply of goods and services, influencing prices and market dynamics through their transactions.
Parity Values
Equal-valued metrics that compare different financial instruments, such as conversion parity between options and stocks.
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