Economic order quantity (EOQ) refers to the optimal order size that will result in the lowest ordering

and carrying costs for an item of inventory based on its expected usage. Advantages of ordering Economic order quantity of inventory. 1 Constant or uniform demand: The demand or usage is even through-out the period 2 Known demand or usage: Demand or usage for a given period is known i.e. deterministic 3 Constant unit price: Per unit price of material does not change and is constant irrespective of the order size 4 Constant Carrying Costs: The cost of carrying is a fixed percentage of the average value of inventory 5 Constant ordering cost: Cost per order is constant whatever be the size of the order Inventories can be replenished immediately as the stock level reaches exactly equal to zero. Constantly there is no shortage of inventory. c) Critics of the Baumol Model Baumol model has attracted its share of critics. Of the many criticisms directed at sales/market share maximizing managerial model, four are particularly central (1) It is primarily concerned with oligopolistic firms such as those found in retails and airline industries, but not fully suitable for other types of market structure such as perfect competition, monopoly and Monopolistic Competition; (2) Profit is considered exogenous to the model ; (3) While accepting the presence of competition and presume interdependence, it neglects rival behavior; and (4) manager have no utility trade-off between profits and sales, up to the profit constraints the firm is concerned only with profit and after the constraints is met, the only concern is with sales Additionally, the Baumol model failed to address: 1. Rivalry of a Competitive markets and potential price competition 2. Research and development and product line extensions are ignored, so is the need for diversification and differentiation. 3. The model gives only a snapshot of the organization position; it provides only a one-off explanation of what organizations may look like and the manner in which they may act.