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THE ECONOMIC ORDERING QUANTITY PROBLEM AND WEALTH MAXIMIZATION
Author(s) -
McDaniel William R.
Publication year - 1986
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1986.tb01141.x
Subject(s) - economic order quantity , maximization , yield (engineering) , economics , inventory management , mathematical optimization , microeconomics , operations research , mathematics , operations management , business , thermodynamics , physics , supply chain , marketing
The typical financial management text states that management's objective should be to maximize owners’ wealth. The same texts then economic ordering quantity (EOQ) as a method for analyzing inventory problems without typing EOQ back to wealth maximization. This article shows algebraically that EOQ is not entirely consistent with the assumed objective. However, by simulation, EOQ is shown to yield answers that are sufficiently accurate for practical application.