The interest in the study of behaviour of the transactions demand for cash by corporations has been stimulated by Baumol (1952), Tobin (1956), and Friedman (1959). Baumol and Tobin suggested that there are economies of scale in cash holdings and transactions elasticity of cash balances is 0.5....

This paper derives the transaction demand for inventory equations so as to investigate whether transactions inventory balances vary proportionately or less than in proportion to changes in the volume of sales. It also investigates the effect of capital costs on inventory holdings of the...