An economic order quantity model with stock and price sensitive demand

Many business practices show that the presence of a larger quantity of goods displayed may attract more customers than that with a smaller quantity of goods. This phenomenon implies that the demand may have a positive correlation with stock level. Under such a circumstance, a firm should seriously consider its pricing and ordering strategy since the demand for their goods may be affected by their selling prices and inventory level. This paper aims to develop a continuous inventory model for finding the strategy for a firm that sells a seasonal item over a finite planning time. The purpose of this firm is to maximize its expected profit by determining the optimal ordering quantity and price setting/changing strategy. Some sufficient conditions are found for finding the optimal decision rules.