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THE WEALTH MAXIMIZING ORDERING QUANTITY: AN EXTENSION
Author(s) -
Rodriguez Ricardo J.
Publication year - 1988
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.1540-6288.1988.tb00788.x
Subject(s) - economic order quantity , expression (computer science) , estimator , extension (predicate logic) , simple (philosophy) , series (stratigraphy) , taylor series , value (mathematics) , order (exchange) , connection (principal bundle) , economics , mathematics , mathematical economics , mathematical optimization , econometrics , computer science , statistics , mathematical analysis , paleontology , supply chain , philosophy , geometry , epistemology , finance , political science , law , biology , programming language
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.