A production decision model for time-dependent elastic demand

The success of a manufacturing corporation mostly depends on its production decisions. The selection of production levels is a primary responsibility of management who should select production levels that maximize the discounted value of the cash-flow stream (NPV) resulting from the production projects. As a result, the need to evaluate the cash-flow stream for various production levels is becoming more frequent. The paper provides an explicit model for the economic evaluation of various attainable production levels. The model, developed in this study, under the condition of a time-dependent elastic demand, for each year compares a series of gross incomes G, that results from the various attainable production amounts Q, with a corresponding series of minimum annual revenue requirements R. Based on these comparisons, the paper identifies the optimal production level and the unit selling price for a particular year where G-R is a maximum and finally, based on the maximum G-R values, it determines the NPV value. A computer program (written in PASCAL) is provided to implement the model on either a TI or IBM. The program is capable of displaying and printing the results. Because of the use of several levels of nesting, the top-down programming technique is used in its design and implementation.