A firm that sells 5,000 blivets per month is trying to determine how many blivets to keep in inventory. The financial manager has determined that it costs $200 to place an order. The cost of holding inventory is 4 cents per month per average blivet in inventory. A five-day lead time is required for delivery of goods ordered. (This lead time is known with certainty.)
a. Develop the algebraic expression for determining the total cost of holding and ordering inventory.
b. Plot the total holding costs and the total ordering costs on a graph where the horizontal axis represents size of order and the vertical axis represents costs.