In managing inventory,firms must balance the costs of carrying larger inventories against resulting sales and profits.

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Managing inventory involves making decisions about how much inventory to carry, and firms must consider the costs of holding larger inventories (such as storage costs, insurance, and the opportunity cost of tying up capital) against the potential benefits of having inventory on hand to meet customer demand and generate sales and profits. This is known as the inventory cost trade-off.

In Managing Inventory,firms Must Balance the Costs of Carrying Larger