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DYNAMIC PRICING AND INVENTORY CONTROL FOR A PRODUCTION SYSTEM WITH AVERAGE PROFIT CRITERION

  • Yifan Xu (a1) and Xiuli Chao (a2)

Abstract

In this article we study the joint optimization of finished goods inventory and pricing in a make-to-stock production system with long-run average profit criterion. The production time is random with controllable rate and the demand is Markovian with rate depending on the sale price. The objective is to dynamically adjust the production rate and the sale price to maximize the long-run average profit. We obtain the optimal dynamic pricing and production control policy and present an efficient bisection algorithm for computing the policy parameters.

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