In the annual cost curve for the EOQ model, the ordering cost ________ with the order quantity.
A) increases linearly
B) decreases linearly
C) increases negative exponentially
D) decreases negative exponentially

Question

Quizplus · Accepted Answer

The annual cost curve for the EOQ model is a U-shaped curve. The total cost is the sum of the ordering cost and the carrying cost. The ordering cost decreases as the order quantity increases because the number of orders required decreases. However, the carrying cost increases as the order quantity increases because more inventory is being held. The minimum point on the curve represents the optimal order quantity, where the sum of ordering cost and carrying cost is minimized. As the order quantity increases beyond this point, the ordering cost decreases at a decreasing rate (negative exponentially) while the carrying cost increases at an increasing rate. Therefore, the ordering cost decreases negative exponentially with order quantity.

In the Annual Cost Curve for the EOQ Model, the Ordering