The economic production quantity is 500 units (units are delivered to the user department as they come off the production line). If the firm decides to buy this item from an outside supplier rather than producing it, the economic purchase quantity would probably be (assume that inventory costs of production and purchasing an item are the same):

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The economic purchase quantity is typically more than the economic production quantity because purchasing in bulk often allows for lower ordering costs and may offer price discounts, reducing the total cost per unit.

The Economic Production Quantity Is 500 Units (Units Are Delivered