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Capacity Expansion and Specialization

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  • A. J. Kalotay

    (Bell Laboratories)

Abstract

We consider a firm which is constrained to meet a growing demand for each of its two services. There are two types of equipment available to the firm: an expensive general-purpose equipment and a cheaper specialized equipment which could provide only one of the services. We assume that the ratio of the demands is independent of time and that identical scale-economies are offered in the cost of the equipments. We establish a lower bound for the present worth of the optimal policy in the case of linearly or exponentially growing demands, and determine the conditions under which the use of the specialized equipment is justified. We show that in the case of linearly growing demands the specialized equipment should eventually be used, while if the demands are growing exponentially this may not be the case.

Suggested Citation

  • A. J. Kalotay, 1973. "Capacity Expansion and Specialization," Management Science, INFORMS, vol. 20(1), pages 56-64, September.
    • Handle: RePEc:inm:ormnsc:v:20:y:1973:i:1:p:56-64
    DOI: 10.1287/mnsc.20.1.56
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    Cited by:

    1. Kimms, A, 1998. "Stability Measures for Rolling Schedules with Applications to Capacity Expansion Planning, Master Production Scheduling, and Lot Sizing," Omega, Elsevier, vol. 26(3), pages 355-366, June.
    2. Kimms, Alf, 1996. "Stability measures for rolling schedules with applications to capacity expansion planning, master production scheduling, and lot sizing," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 418, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    3. İlker Baybars & Richard H. Edahl, 1988. "A heuristic method for facility planning in telecommunications networks with multiple alternate routes," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(4), pages 503-528, August.

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