• Profile photo of John Moffat says

      I do deal with this in the lecture.

      Think about the graph that I drew.

      The EOQ is where the total inventory costs are at a minimum. At any other level the total inventory costs will be higher.
      If we order 10,000 then it could be worth having the higher inventory costs because we will get the discount on the purchase price – the only way we can check is by costing out.

      However, if we ordered (say) 7,000, then the total inventory costs will be higher than at the EOQ. We will still be having to pay the same purchase price, so it cannot possibly be better that the EOQ.

      The best is always the cheaper of the EOQ and the levels at which we first get a discount. No other levels could possibly be better.

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