The optimal investment in current assets for an active company occurs at the point where:
A) both shortage costs and carrying costs equal zero.
B) shortage costs are equal to zero.
C) carrying costs are equal to zero.
D) carrying costs exceed shortage costs.
E) shortage costs and carrying costs are equal.

Question

Quizplus · Accepted Answer

The optimal investment in current assets for an active company occurs at the point where the sum of shortage costs and carrying costs is minimized. This point occurs when both costs are equal, which is option E. At this point, any further investment in current assets will result in an increase in carrying costs, while any reduction in current assets will result in an increase in shortage costs.

The Optimal Investment in Current Assets for an Active Company