An EPQ Model for Deteriorating Items with Allowable Shortage and Price Difference-dependent Demand

Abstract

In this paper, we develop a deterministic inventory model for deteriorating items with allowable shortage. In addition, we consider that the selling price is set based on the inventory level and the demand rate is a function of difference price. In light of these concerns, this paper has two purposes: (a) provide a profit maximization model (b) to find optimal the production run time and the shortage period are allowed. Then a proof of model was concerned for the existence and uniqueness of the optimal solution. An algorithm is provided to find the optimal solution. Finally, a numerical example is used to illustrate the algorithm and the sensitivity analysis of the optimal solution with respect to major parameters is also carried out.