Good inventory management is crucial to running a retail business. Having too little stock on
hand means customer selection will suffer, and lost sales may result. Ordering too many
products can reduce working capital and increase costs. This assignment will address some of
those issues to help you do a better job of managing your inventory.
Changing your price level or switching product lines will cause a change in inventory
stock. Describe what happens in the context of the simulation.

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1. **Effect of Price Change on Demand and Inventory:**  
   When the price level is changed, the demand for the products tends to change according to the law of demand. For instance, if the price is increased, then the demand $$ D $$ may drop, leading to a reduction in the rate at which inventory is depleted. Conversely, if the price is lowered, then the demand $$ D $$ may increase, leading to a faster turnover of inventory.

2. **Impact on Order Quantities and Inventory Levels:**  
   In response to changes in demand due to a price adjustment, the simulation will typically recalculate the optimal order quantity. Using an inventory management formula such as the Economic Order Quantity (EOQ),  
   $$
   EOQ = \sqrt{\frac{2DS}{H}},
   $$  
   where $$ D $$ is the annual demand, $$ S $$ is the setup or ordering cost, and $$ H $$ is the holding cost—the simulation will adjust $$ D $$ based on new demand estimates, causing corresponding changes in $$ EOQ $$. This ultimately adjusts the stock levels maintained.

3. **Switching Product Lines:**  
   Changing product lines effectively introduces a different set of products, each with its own demand patterns, carrying costs, and profit margins. In the simulation, when you switch product lines:  
   - The demand behavior $$ D $$ will differ compared to the previous product line, which changes how quickly inventory is drawn down.  
   - The product’s unit cost, storage requirements, and potential shelf life might also be different, leading to changes in the optimal inventory policy.  
   Therefore, switching product lines affects inventory via adjustments in both ordering policies and stock levels.

4. **Overall Simulation Dynamics:**  
   The simulation accounts for these changes by recalculating:
   - **Demand Forecasts:** Updated based on price level and product specifications.
   - **Reorder Points:** As the rate of consumption changes, so does the point at which a new order is triggered.
   - **Working Capital Management:** Higher stock levels might tie up more capital, while lower stock levels might risk stockouts.  
     
   This dynamic update ensures that the simulation reflects the real-world challenges of balancing stock to prevent lost sales from excessive price hikes or overstocking from aggressive discounting.

5. **Conclusion:**  
   In summary, changing the price level or switching product lines in the simulation leads to a series of recalculations in demand forecasts, order quantities, and reorder points. These adjustments help to optimize inventory levels by balancing the risks of stockouts and the costs associated with holding too much inventory, thereby enhancing overall inventory management.

When you change prices or switch product lines in the simulation, it affects how much of each product you have in stock. If you raise prices, people might buy less, so you'll have more stock left. If you lower prices, people might buy more, so you'll need to order more stock. Switching products means you'll have different items with different demand and costs, so you'll adjust how much you order and keep in stock to avoid running out or having too much. This helps you manage your inventory better by balancing what you have with what customers want.

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