Abstract
This note is concerned with the optimality of an (s; S) policy for a single-item infinite-horizon inventory model when the penalty cost is made-up of two parts: A lump-sum cost independent of the amount of the shortage and a variable cost proportional to the amount of the shortage. Using a Quasi-Variational Inequality (QVI) approach, an (s; S) policy is shown to be optimal under some mild technical conditions.
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