A capacity‐expansion model for two facility types

This paper describes a deterministic capacity‐expansion model for two facility types with a finite number of discrete time periods. Capacity expansions are initialed either by new construction or by the conversion of idle capacity from one facility type to the other. Once converted, the capacity becomes an integral part of the new facility type. The costs incurred include construction, conversion, and holding costs. All cost functions are assumed to be nondecreasing and concave. Using a network flow approach, the paper develops an efficient dynamic‐programming algorithm to minimize the total costs when the demands for additional capacity are nonnegative in each period. Thereafter, the algorithm is extended for arbitrary demands. The model is applied to a cable‐sizing problem that occurs in communication networks, and numerical examples are discussed.