The Cost of a Policy - Inventory: The EOQ and Lot-Sizing, Honestly

EOQ begins with a model of ordering and holding cost for a chosen order quantity. This lesson computes one policy exactly, so the trade-off is visible before optimizing.

highlighted = computed this step

Inventory Cost Setup

Demand is 16, each order costs 2, and holding costs 1 per unit per period. Motivation: EOQ makes the trade-off explicit before any optimum is claimed.

D=16\quad K=2\quad h=1

One Policy Cost

For order quantity 4, ordering cost is 8 and holding cost is 2. Why: smaller orders increase order frequency while larger orders carry more inventory.

C(Q)=KD/Q+hQ/2

Total Cost

The total for this policy is 10. Interpretation: EOQ adds the two exact cost components for the chosen quantity; this is a model cost, not observed performance.

C(4)=8\;+\;2=10

Diagram note

Honesty note: this lesson computes one policy inside the EOQ model; it does not yet prove that the policy is best. Pixel positions are rounded for layout; every number shown is exact.

\text{one policy cost is exact model arithmetic}