Copyright © 2012 Hui-Ling Yang. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

In today’s competitive markets, selling price and purchasing cost are usually fluctuating with economic conditions. Both selling price and purchasing cost are vital to the profitability of a firm. Therefore, in this paper, I extend the inventory model introduced by Teng and Yang (2004) to allow for not only the selling price but also the purchasing cost to change from one replenishment cycle to another during a finite time horizon. The objective is to find the optimal replenishment schedule and pricing policy to obtain the profit as maximum as possible. The conditions that lead to a maximizing solution guarantee that the existence, uniqueness, and global optimality are proposed. An efficient solution procedure and some theoretical results are presented. Finally, numerical examples for illustration and sensitivity analysis for managerial decision making are also performed.