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BetterPlace is a startup in Europe that uses rare earth metals to produce batteries for electric vehicles. Demand for batteries is relatively stable, and the
BetterPlace is a startup in Europe that uses rare earth metals to produce batteries for electric vehicles. Demand for batteries is relatively stable, and the company can order rare earth metals from a supplier in Southeast Asia with lead-time of 2 weeks. The annual holding cost is 20%, and all assumptions of the EOQ model are satisfied. BetterPlace manages its inventory of rare earth metals by applying the EOQ formula, and the optimal order quantity is Q* = 100kg per order. Due to political unrest in the region, the price of rare earth metals has recently doubled and BetterPlace needs to adjust its inventory policy accordingly. What is the effect of this price increase on the optimal order quantity and total inventory cost (including ordering cost, holding cost, and procurement cost)
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