Problem 6a

Introduction

The economic production quantity model (also known as the EPQ model) determines the quantity a company or retailer should order to minimize the total inventory costs by balancing the inventory holding cost and average fixed ordering cost.

In economics, average cost or unit cost is equal to total cost (TC) divided by the number of units of a good produced (the output Q): Average cost has strong implication to how firms will choose to price their commodities.