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EOQ formula
The EOQ equation assumes demand is constant and steady. It also assumes that demand for different items is independent. This is inappropriate for controlling inventories in intermittent systems of assembled products where demand for lower level items is dependent on demand for finished goods. Consider the Ford Motor Company.
Demand for wheels or tyres are very much related to the demand for engines. So for components and raw materials it is wrong to apply the EOQ model.
Why does a price index based on constant weights tend to overstate inflation in periods after the base year when the price of one good is rising quickly compared to other goods?
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TC = Q3 – 8Q2 + 68Q + 4
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