Abstract
This paper develops a finite time-horizon deterministic economic order quantity (EOQ) inventory model with shortages, where the demand rate at any instant depends on the on-hand inventory (stock level) at that instant. The effects of inflation and the time value of money are taken into account, considering two separate inflation rates: namely, the internal (company) inflation rate and the external (general economy) inflation rate. The results are discussed with a numerical example and particular case of the model is discussed in brief. A sensitivity analysis of the optimal solution with respect to the parameters of the system is carried out.
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