Optimal price and quantity under power demand pattern and non-linear holding cost.

Abstract

In this work we develop a deterministic inventory model for an item whose demand depends on both selling price and time since the last inventory replenishment. More specifically, we assume that the demand rate additively combines the effects of selling price and a time-power function. Moreover, we consider that the holding cost is a power function of the amount of time that a firm holds inventory in stock. The objective is to determine the inventory cycle and the selling price that maximize the total inventory profit per unit time. We present an efficient algorithm to solve this inventory problem. Some numerical examples are provided to illustrate how the algorithm operates.