Optimal inventory levels are lower when carrying costs are high, and are higher when the cost of restocking inventories is high.

Question

Quizplus · Accepted Answer

When carrying costs are high, it is more expensive to hold excess inventory. Therefore, businesses will keep their inventory levels lower to avoid these costs. On the other hand, when restocking costs are high, businesses will aim to keep higher inventory levels to minimize the frequency of restocking and associated costs.

Optimal Inventory Levels Are Lower When Carrying Costs Are High