The document discusses three cost curves: management cost curve, shortage cost curve, and total cost curve. It explains that total cost is equal to management cost plus shortage cost. The management cost curve increases as inventory levels increase, while the shortage cost curve decreases as inventory levels increase. The total cost curve follows a U-shape, as management costs rise with more inventory while shortage costs fall.

1. E-Commerce
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 By
Mohammad Tawhidur Rahman
Bangladesh
Date of Submission:
03 November, 2015

2. Mohammad Tawhidur Rahman 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.

3. Mohammad Tawhidur Rahman 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
Number of
stock
7 7 14
5 10 15
10 8 18
-THANK YOU-