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Optimal asset replacement: Profit maximization under varying technology

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  • Yatsenko, Yuri
  • Hritonenko, Natali

Abstract

The paper analyzes a profit-maximizing serial replacement problem under variable asset productivity, operating cost, and replacement cost that depend on asset age and installation time. The majority of modern asset replacement models minimize costs. The authors examine and highlight essential differences between profit-maximizing and cost-minimizing replacement strategies in the infinite-horizon framework. Next, they construct and analyze an effective multi-cycle replacement algorithm that approximates the infinite-horizon solution with non-equal asset lifetimes. Numeric simulation illustrates theoretic outcomes and demonstrates a good performance of the constructed algorithm under different patterns of changing technology.

Suggested Citation

  • Yatsenko, Yuri & Hritonenko, Natali, 2020. "Optimal asset replacement: Profit maximization under varying technology," International Journal of Production Economics, Elsevier, vol. 228(C).
    • Handle: RePEc:eee:proeco:v:228:y:2020:i:c:s0925527320300645
    DOI: 10.1016/j.ijpe.2020.107670
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    References listed on IDEAS

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