The supplier of a product wants to discourage large quantity purchases. Suppose that all of the assumptions of the basic EOQ apply except that a reverse quantity discount is applicable; that is, the unit variable cost is equal to c0 for any Q such that 0 < Q < q1, and equals c0(1 + d) for Q ≥ q1, with d > 0.
1- Write an expression (or expressions) for the total relevant costs per year as a function of the order quantity Q. Introduce and define whatever symbols you feel are necessary.
2- Using graphical sketches, indicate the possible position of the best order quantity (as is done in Figure 4-11 in your book for the regular discount case).
3- What is the best order quantity for an item with the following characteristics:
l = 50,000 units/year
K = $10
c = $1/unit
d = 0.005
i = 20% per year
q1 = 1500 units