International Masters in International Business (IMIB)

School of International Trade & Economics (SITE) Jiangxi University of Finance and Economics (JUFE)

Jiangxi, PR China

E-Commerce Assignment # 5

Please draw the three curves together that is total cost curve, management cost curve and shortage cost curve in one graph.

Suppose that total cost is equal to management cost + shortage cost. Explain the general trend of each curve.

Submitted To:

Prof. LI Xingwu E-Mail: liyue7511@163.com

Submitted By Mohammad Tawhidur Rahman

Student ID # 31540051 Bangladesh

Date of Submission: 03 November, 2015

Mohammad Tawhidur Rahman_31540051 EC-4_IMIB P-2

Question # 5 : Please draw the three curves together that is total cost curve, management cost curve and shortage cost curve in one graph. Suppose that total cost is equal to management cost + shortage cost. Explain the general trend of each curve.

Answer # 5 : Management cost is the total of wages of office staffs, stationery, rent, utility and other logistic costs. Shortage cost is the cost of lake of products or not being able to meet the customer demands from stock. Total cost is the compilation of management cost and shortage cost for inventory or warehouse management. Graph 1: Three curves together Total cost curve (TC), management cost curve (MC) and shortage cost curve (SC), X axis for stock or inventory and Y axis for cost of shortage or management.

Here we see when stock is increasing MC is also increasing; but when SC increasing MC is decreasing. But it never goes down to zero because minimum MC always exits if there is zero stock. The above mentioned graph represent the idea of TC = MC + SC. TC ≥ 2 √MC.SC TC = 2 √MC.SC Here MC = SC Lowest point of the TC curve is the lowest cost. It is the equilibrium point of MC and SC.

Mohammad Tawhidur Rahman_31540051 EC-4_IMIB P-3

General trend of SC curve:

If the stock or inventory is increasing SC goes down gradually to right downward. General trend of MC curve:

If the stock or inventory is increasing MC goes up simultaneously to right upward. General trend of TC curve:

As we know TC= MC + SC; SC goes right downward and MC goes right upward so generally TC will goes like U shape. We can see the general trends of 3 curves by following table:

SC MC TC 7 7 14 5 10 15

Number of stock

10 8 18

-THANK YOU-