An economic production lot size for continuous decrease in unit production cost

It is common that prices of raw materials, parts or products decrease significantly after they come onto the market. High technology products are good examples, such as PCs, CPUs, DRAM, and mobile phones. Consequently, the traditional economic production quantity (EPQ) model assuming a constant unit production cost is no longer suitable for today's time-based competition. This study incorporates linearly and exponentially decreasing unit production costs during the mature stage of a product life cycle and presents a mathematical inventory model for production policy. A recursive algorithm is developed to obtain the optimal production schedule and a one-dimension search method is applied to find the optimal number of production cycles. In addition, numerical examples to illustrate the proposed model and its significance with or without considering a continuous reduction in unit production costs for the production policy are discussed as well.