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Some Comments on the Validity of EOQ Formula under Inflationary Conditions
Author(s) -
Mehra Satish,
Agrawal Surendra P.,
Rajagopalan M.
Publication year - 1991
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1991.tb01272.x
Subject(s) - economic order quantity , inflation (cosmology) , economics , discounting , order (exchange) , mathematical economics , constant (computer programming) , econometrics , mathematics , computer science , physics , theoretical physics , supply chain , finance , political science , law , programming language
In an earlier issue of Decision Sciences , Jesse, Mitra, and Cox [1] examined the impact of inflationary conditions on the economic order quantity (EOQ) formula. Specifically, the authors analyzed the effect of inflation on order quantity decisions by means of a model that takes into account both inflationary trends and time discounting (over an infinite time horizon). In their analysis, the authors utilized two models: Current‐dollars model and Constant‐dollars model. These models were derived, of course, by setting up a total cost equation in the usual manner then finding the optimum order quantity that minimizes the total cost. Jesse, Mitra, and Cox [1] found that EOQ is approximately the same under both conditions; with or without inflation. However, we disagree with the conclusion drawn by [2] and show that EOQ will be different under inflationary conditions, provided that the inflationary conditions are properly accounted for in the formulation of the total cost model.