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Average Cost Models with Lost Sales

In: Markovian Demand Inventory Models

Author

Listed:
  • Dirk Beyer

    (M-Factor)

  • Feng Cheng

    (Office of Performance Analysis and Strategy)

  • Suresh P. Sethi

    (The University of Texas at Dallas)

  • Michael Taksar

    (University of Missouri)

Abstract

This chapter is concerned with the long-run average cost minimization of a stochastic inventory problem with Markovian demand, fixed ordering cost, and convex surplus cost in the case of lost sales. The formulation of the problem is similar to that introduced in Chapter 4 except that we replace the discounted cost objective function by the long-run average cost objective function. To deal with this average cost problem, we apply the vanishing discount method to solve the dynamic programming equations defined for the problem, and establish the corresponding verification theorem.

Suggested Citation

  • Dirk Beyer & Feng Cheng & Suresh P. Sethi & Michael Taksar, 2010. "Average Cost Models with Lost Sales," International Series in Operations Research & Management Science, in: Markovian Demand Inventory Models, chapter 0, pages 133-150, Springer.
    • Handle: RePEc:spr:isochp:978-0-387-71604-6_7
    DOI: 10.1007/978-0-387-71604-6_7
    as

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