public class InventoryControl
extends Object
Consider a 3-period inventory control problem. At the beginning of each period the firm should decide how many units of a
product should be produced. If production takes place for x units, where x > 0, we incur a production cost c(x).
This cost comprises both a fix and a variable component: c(x) = 0, if x = 0; c(x) = 3+2x, otherwise.
Production in each period cannot exceed 4 units. Demand in each period takes two possible values: 1 or 2 units with equal
probability (0.5). Demand is observed in each period only after production has occurred. After meeting current period's
demand holding cost of $1 per unit is incurred for any item that is carried over from one period to the next. Because
of limited capacity the inventory at the end of each period cannot exceed 3 units. All demand should be met on time
(no backorders). If at the end of the planning horizon (i.e. period 3) the firm still has units in stock, these can be
salvaged at $2 per unit. The initial inventory is 1 unit.
- Author:
- Roberto Rossi