Abstract
The article determines pricing and order-up-to level S inventory decisions over an infinite planning horizon from the point of view of a risk-averse decision maker. The demand is assumed to be stochastic but influenced by the selling price which is a decision variable. Shortages are allowed and backordered partially. We calculate the present value of the cash flow over the entire planning horizon and incorporate the notion of risk aversion into the model using a concave utility function. We numerically demonstrate the model and investigate the impact of different model-parameters on the optimal decisions. It is observed that the optimal selling price for a risk-averse decision maker is not less than the optimal selling price of a risk-neutral decision maker while the optimal order level for the risk-averse decision maker is always less than that of the risk-neutral decision maker.
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B.C. Giri
B.C. Giri is an Associate Professor in the Department of Mathematics, Jadavpur University, Kolkata, India. He did his M.S. in Mathematics and Ph.D. in Operations Research both from Jadavpur University, Kolkata, India. His research interests include inventory theory, production planning and scheduling, supply chain management, supply chain risk management, and his research articles have appeared in Naval Research Logistics, International Journal of Production Research, OMEGA, Journal of the Operational Research Society, European Journal of Operational Research, International Journal of Production Economics and other journals. He was a JSPS Research Fellow at Hiroshima University, Japan during the period 2002–2004, Humboldt Research Fellow at Mannheim University, Germany during the period 2007–2008, Fulbright-Nehru Senior Research Fellow at Louisiana State University, USA in the year 2012 and Commonwealth Academic Staff Fellow at Sheffield University, UK in the year 2014.