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The economic production and pricing model with lot-size-dependent production cost

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  • Alireza Kabirian

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    Abstract

    In this paper, the economic production quantity problem for a single-product single-machine system is extended. It is assumed that annual demand of the product is a function of price set by manufacturer. This extension considers sales revenue, inventory and setup costs as well as a variable cost of production which is a function of the lot size. Several linear and non-linear functions of demand and variable cost are considered in this paper and a global solution methodology is presented for the models developed. Newton’s method is used to find local optima and asymptotic convergence of the solution algorithm to a global optimum is proved. Numerical studies followed by a discussion provide additional insights into the problem. Copyright Springer Science+Business Media, LLC. 2012

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    File URL: http://hdl.handle.net/10.1007/s10898-011-9737-7
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Global Optimization.

    Volume (Year): 54 (2012)
    Issue (Month): 1 (September)
    Pages: 1-15

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    Handle: RePEc:spr:jglopt:v:54:y:2012:i:1:p:1-15

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    Web page: http://www.springer.com/business/operations+research/journal/10898

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    Related research

    Keywords: Economic production quantity; Optimal pricing; Inventory control; Variable production cost;

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    1. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
    2. Ardalan, Alireza, 1995. "A comparative analysis of approaches for determining optimal price and order quantity when a sale increases demand," European Journal of Operational Research, Elsevier, vol. 84(2), pages 416-430, July.
    3. Wee, Hui-Ming, 1995. "Joint pricing and replenishment policy for deteriorating inventory with declining market," International Journal of Production Economics, Elsevier, vol. 40(2-3), pages 163-171, August.
    4. Chao, Xiuli & Chen, Hong & Zheng, Shaohui, 2008. "Joint replenishment and pricing decisions in inventory systems with stochastically dependent supply capacity," European Journal of Operational Research, Elsevier, vol. 191(1), pages 142-155, November.
    5. Inderfurth, Karl, 2004. "Optimal policies in hybrid manufacturing/remanufacturing systems with product substitution," International Journal of Production Economics, Elsevier, vol. 90(3), pages 325-343, August.
    6. Kunreuther, Howard & Richard, Jean Francois, 1971. "Optimal Pricing and Inventory Decisions for Non-Seasonal Items," Econometrica, Econometric Society, vol. 39(1), pages 173-75, January.
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