Economic lot size model for price-dependent demand under quantity and freight discounts

Previous studies have developed procedures which determine optimal lot size and selling price when demand depends on price and all-unit quantity discounts are offered. Further, recent studies have addressed the concepts of quantity and freight discounts for constant demand. In this paper, we incorporate quantity and freight discounts in inventory decision making when demand, rather than being constant, is considered to be dependent upon price. An algorithm is developed to determine the optimal lot size and selling price for a class of demand functions, including constant price-elasticity and linear demand. A numerical example is provided to illustrate the model and a computer program is developed to implement the model derived in the paper.