This paper considers an economic production quantity model with imperfect production processes where the setup cost is function of capital expenditure. The mathematical model is derived to determine the optimal production run length and investment in setup cost reduction such that the total cost per unit time is minimized. In addition, an efficient algorithm is provided to find the optimal production run length and setup cost. A numerical example is provided to illustrate the results and to assess the cost savings realized by adopting investment strategy. Furthermore, some managerial implications are also included.