Production Smoothing with Stochastic Demand II: Infinite Horizon Case

Abstract

In an earlier paper [5], we generalized and extended Beckmann'a results [1] for a production and inventory problem with proportional smoothing costs and demands being random variables. Our previous results concerned the finite horizon nonstationary case. Here we consider the infinite horizon stationary case. Two curves in the plane determine an optimal policy. They are shown to have slopes between minus one and zero, to be differentiable, and to be bounded by two straight lines with a slope of minus one. These results are used (a) to accelerate each iteration of a successive approximations algorithm and (b) to formulate a linear programming problem from whose solution an optimal policy can be determined.