Final answer:
The cost-minimizing order quantity with quantity discounts minimizes the total of holding, ordering, and product costs. It considers economies of scale and can differ from the EOQ model, which only minimizes holding and ordering costs.
Step-by-step explanation:
When quantity discounts are allowed, the cost-minimizing order quantity minimizes the sum of holding, ordering, and product costs (Answer C). This is because the bulk purchase discounts can significantly lower the overall product costs, which must be factored into the optimum ordering quantity decision. This approach differs from the traditional Economic Order Quantity (EOQ) model where the focus is strictly on minimizing holding and ordering costs, without considering discounts for purchasing larger quantities.
In the context of economies of scale, as a company increases its order quantity, it experiences reduced costs per unit due to discounted prices. Hence, when discount tiers are considered, the optimal scale of production may result in purchasing quantities that are higher than those determined by the EOQ model. This balancing act ensures that the total cost, including holding, ordering, and product costs, is minimized, which ultimately allows the firm to compete more effectively in the marketplace by potentially offering lower prices or achieving higher profit margins.