Expansion formulae for characteristics of cumulative cost in finite horizon production models

Expansion formulae for characteristics of cumulative cost in finite horizon production models

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Article ID: iaor20021098
Country: Netherlands
Volume: 132
Issue: 1
Start Page Number: 50
End Page Number: 61
Publication Date: Jul 2001
Journal: European Journal of Operational Research
Authors: ,
Keywords: markov processes
Abstract:

We consider the expected value and the tail probability of cumulative shortage and holding cost (i.e. the probability that cumulative cost is more than a certain value) in finite horizon production models. An exact expression is provided for the expected value of the cumulative cost for general production functions. This expression is then used to compute the optimal production rate when the production function is linear. An expansion formula (whose coefficients can be obtained recursively) is provided for the tail probability. Examples are given to illustrate the results.

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