Joint price and lot size determination under conditions of permissible delay in payments and quantity discounts for freight cost

Abstract

This paper deals with the problem of determining the retailer's optimal price and lot size simultaneously under conditions of permissible delay in payments. It is assumed that the ordering cost consists of a fixed set-up cost and a freight cost, where the freight cost has a quantity discount offered due to the economies of scale. The constant price elasticity demand function is adopted, which is a decreasing function of retail price. Investigation of the properties of an optimal solution allows us to develop an algorithm whose validity is illustrated through an example problem.