Ordering costs decline as the order quantity increases while carrying costs increase as the order quantity increases.

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This is known as the Economic Order Quantity (EOQ) model, which determines the optimal order quantity that minimizes total inventory costs. As the order quantity increases, the ordering costs (such as setup and processing fees) are spread out over a larger number of units, which reduces the cost per unit. However, as the order quantity increases, the carrying costs (such as storage and maintenance fees) also increase since more inventory is being held for a longer period of time.

Ordering Costs Decline as the Order Quantity Increases While Carrying