Abstract

We studied the production inventory problem in a manufacturing system with degenerate Stochastic demand. We derived the dynamics of inventory-demand ratio that evolves according to Stochastic neoclassical differential equation through Ito’s Lemma. We established the Riccati based solution of the Hamilton-Jacobi-Bellman (HJB) equation associated with this problem. Key words: Inventory production models, Stochastic differential equations, manufacturing systems.

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