Capacity Expansion with Imports and Inventories

Abstract

Models for planning capacity expansion typically have excluded the possibility of using inventories to delay expansion decisions. In this paper some properties are derived for an optimal expansion plan allowing inventories, and a dynamic programming model is formulated for determination of optimal expansion, inventory, and import decisions under an assumption of linearly growing demand. Some computational results for the capacity expansion of India's aluminum industry indicate the roles for inventory and import decisions in an expansion plan, and the sensitivity of these decisions to changes in relative costs.