THE WEALTH MAXIMIZING ORDERING QUANTITY: AN EXTENSION |
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| Authors: | Ricardo J. Rodriguez |
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| Affiliation: | University of Miami, Coral Gables, FL 33124. I am grateful to two anonymous referees for helpful suggestions. |
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| Abstract: | This paper derives a simple analytical expression for the value maximizing economic ordering quantity (EOQ). The traditional EOQ formula can be derived from this expression through a second-order Taylor series expansion. This connection explains McDaniel's recent simulation results showing that the EOQ is an accurate estimator of the optimal ordering quantity. |
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