OPTIMAL PRICING AND LOT SIZING POLICY WITH TIME-DEPENDENT

DEMAND RATE UNDER TRADE CREDITS

1
R.P. TRIPATHI &
2
S.S. MISRA
1
Department of Mathematics, Graphic Era University, Dehradun (Uk), India
DRDO, New Delhi, India

ABSTRACT
Large number of researcher papers has been published for inventory lot- size models under trade
credit financing by assuming that demand rate is constant. But demand rate is often not constant. During
the growth stage of the product life cycle, the demand function increases with time. In this paper we
extend the constant demand to time- dependent demand. This paper derives the problem of determining
the retailers optimal price and optimal total profit when the supplier permits delay in payments for an
order of a product. In this paper demand rate is considered as a function as a function of price and time.
We also provide the optimal policy for the customer to obtain its maximum annual net profit.
Mathematica software is used for finding optimal price and optimal replenishment time simultaneously.
Finally, numerical examples and sensitivity analysis are given to illustrate the theoretical results.
KEYWORDS: Inventory, Permissible Delay, Demand Rate, Optimal Pricing, Cycle Time.
INTRODUCTION
Large number of research papers/ articles has been presented by researchers in different areas in
real life problems, for controlling inventory. One of the important problems faced in inventory
management is how to maintain and control the inventories of deteriorating items. The most important
concern of the management is to decide when and how much to manufacture so that the total cost
associated with the inventory system should be minimum.
In deriving the economic order quantity formula, it is assumed that the buyer must pay for the
items as soon as he receives them from a supplier. As a marketing policy, some suppliers offer credit
period to the buyer in order to stimulate the demand for the product they produces. Trade credit would
play an important role in the conduct of business for many reasons. These credit periods for a supplier,
who offers trade credit, it an effective means of price discrimination which circumvent antitrust measures
and is also an efficient method to stimulate the demand of the product. To motivate faster payments,
stimulate more sales, or reduce credit expanses, the supplier also provides its customers a price reduction.
In classical inventory model the demand rate is considered as constant or depends upon single parameter
only, like stock, time etc. But changing market conditions have rendered such a consideration is quite
International Journal of Mathematics and
Computer Applications Research (IJMCAR)
ISSN 2249-6955
Vol.2, Issue 3 Sep 2012 106-120
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107 Optimal Pricing and Lot Sizing Policy with Time-
Dependent Demand Rate Under Trade Credits

unfruitful, since in real life situation, a demand cannot depend on a single parameter. In this paper
demand rate is considered as the combination of two factors i.e. price and time.
Goyal [1] established a single inventory model for determining the economic ordering quantity
in the case that the supplier offers the retailer the opportunity to delay his payment within a fixed time
period. Goyal [1] ignored the difference between the selling price and the purchase cost and concluded
that the economic replenishment interval and order quantity increases marginally under trade credits.
Goyals model was corrected by Dave [2] by assuming the fact that the selling price is necessarily higher
than its purchase cost. Aggarwal and Jaggi [3] extended Goyals model for deteriorating items. This
model was generalized by Jamal et al. [4] to allow for shortages and deterioration. Teng et al. [5]
established optimal pricing and ordering policy under permissible delay in payments. In paper [5] it is
considered that selling price is necessarily higher than purchase price. Chang et al. [6] established an
EOQ model for deteriorating items under supplier credits linked to order quantity. Huang [7] developed
economic order quantity under conditionally permissible delay in payments. The main purpose of paper
[7] is to investigate the retailers optimal replenishment policy under permissible delay in payments.
Hwang and Shinn [8] developed the model for determining the retailers optimal price and lot size
simultaneously when the supplier permits delay in payments for an order of a product whose demand rate
is a function of constant price. Abad and Jaggi [9] formulated model of seller buyer relationship, they
provided procedure for finding the sellers and buyers best policies under non cooperative and
cooperative relationship respectively. Lokhandwala et al. [10] established optimal ordering policies
under condition of extended payment privileges for deteriorating items. Optimal retailers ordering
policies in the EOQ model for deteriorating item under trade credit financing in supply chain was
established by Mahata and Mahata [11] .In paper [11] authors obtained optimal cycle time to minimize
the total variable cost per unit time. Tripathi [12] developed an optimal inventory policy for items having
constant demand and constant deterioration rate with trade credit. Many related. Many related articles
can be found in Chang and Teng [13] chung [14], Chung and Liao [15], Huang and Hsu [16] , Liao et al.
[17], Ouyang et al [18], [19] , Teng et al. [20] and their references.
All the above research papers / articles established their EOQ or EPQ inventory models under
trade credit financing by considering that the demand rate is constant. But in case of business, demand
rate is not always constant. During the growth stage of the product life cycle, the demand function
increases with time. In this paper demand rate is taken as the function of retail price and time.Teng [21]
established economic order quantity model with trade credit financing for non- decreasing demand. In
paper [21] demand rate is considered as linearly time dependent. Tripathi [22] developed EOQ model
with time dependent demand rate and time dependent holding cost function. Tripathi and Kumar [23]
presented a model on credit financing in economic ordering policies of time- dependent deteriorating
items by considering three different cases. Tripathi and Misra [24] developed an inventory model with
shortage, time- dependent demand rate and quantity dependent permissible delay in payment. In paper
[24] some important results are obtained. Khanra et al. [25] developed an EOQ for deteriorating items
with time dependent quadratic demand under permissible delay in payment. An inventory model with
R.P. Tripathi & S.S. Misra 108
generalized type demand, deterioration and backorder rates was developed by Hung [26]. In paper [26]
hung extended their inventory model from ramp type demand rate and weibull deterioration rate to
arbitrary deterioration rate in the consideration of partial backorder. Sana [27] presented price- sensitive
demand for perishable item- an EOQ model. In paper [27] demand is taken in such a manner that it
decreases quadratically with selling price. The objective of paper [27] is to find the optimal ordering
quantity and optimal sales prices that maximizes the vanders total profit. Skouri et al. [28] presented
supply chain models for deteriorating products with ramp type demand rate under permissible delay in
payments. In paper [28] optimal replenishment policy is obtained for each model.
In this proposed model, the author develops an EOQ model of non- deteriorating items over finite
time horizon where demand is function of selling price and time. Mathematical models have been
derived under two different circumstances i.e. case I: The credit period m is less than or equal to the
cycle time for settling the account and case II: The credit period is greater than the cycle time for settling
the account. The numerical examples are given for both the cases. Also sensitivity analysis of the model
is given to validate the model for changes in the different parameters.
The rest of the paper is organized as follows: The notations and assumptions used in this paper are
given in section 2. In section 3 mathematical formulations is given for each of the two cases i.e. case I
and II. Section 4 devoted for determination of optimal pricing and cycle time. Numerical example is cited
in section 6. In section 7 optimal solutions for different credit period is provided. In section 8 sensitivity
analysis is mentioned. Finally, this closes with concluding remarks and future research directions in
section 8.
NOTATIONS AND ASSUMPTIONS
The following notations are used throughout this paper:
c : Unit Purchase Cost
h : Inventory Carrying Cost, excluding the capital opportunity cost.
R : Capital opportunity cost (as percentage)
m : Credit period set by the supplier.
I : Earned Interest rate (as a percentage)
S : The ordering cost per order
Q : Order size
T : Replenishment cycle time
q(t) : Inventory level at time t
p : Unit Retail Price
: Scaling Factor ( > 0)
109 Optimal Pricing and Lot Sizing Policy with Time-
Dependent Demand Rate Under Trade Credits

: Index of price elasticity ( > 1)
D : The annual demand, as a decreasing function of price and time;
we set D(p, t) = p
-
t, where > 0 and > 1
Q* : optimal order cycle
T = T
1
: optimal cycle time for case I
T = T
2
: optimal cycle time for case II
p = p* : optimal retail price
p = p* = p
1
: optimal price for case I
p = p* = p
2
: optimal price for case I
Z(p, T) : the total annual profit.
Z*(p, T) : optimal total annual profit
Z
1
*(p,T) : optimal annual profit for case I
Z
2
*(p,T) : optimal annual profit for case II
In addition, the following assumptions are being made:
(i) We assume that the demand is a constant elasticity function of the price and time.
(ii) Shortages are not allowed.
(iii) The inventory system involves only one item.
(iv) The supplier proposes a certain credit period and sales revenue generated during the
credit period is deposited in an interest bearing account with rate I. At the end of the
period, the credit is settled and the retailer starts paying the capital opportunity cost for
the items in stock with rate R (R I).
(v) Replenishments are instantaneous with a known and constant lead time.
(vi) Time horizon is infinite.
The total annual profit consists of: (a) the sales revenue, (b) the purchasing cost, (c) ordering
cost, (d) inventory carrying cost, (e) capital opportunity cost.
MATHEMATICAL FORMULATION
The level of inventory I(t) decreases gradually mainly to meet demands. Hence the variation of
inventory with respect to time can be described by the following differential equation:
R.P. Tripathi & S.S. Misra 110
T t 0 at, t) D(p,
dt
dq(t)
= =
, where,

= p a
(1)
With boundary condition q(T) = 0. Therefore the solution of (1) is given by
T t 0 ), t (T
2
a
q(t)
2 2
=
(2)
and the order size is

2
aT
Q
2
=
(3)



Inventory Inventory
level level
Q
Q

q(t) q(t)






(a) (b)

Fig.1: Credit Period (m) Verses Replenishment Cycle Time (T)

Now, we formulate the annual net profit Z (p,T). The annual net profit consists of the following
elements:
(a). Annual sales revenue =
T
0
p apT
at dt
T 2
=

(b). Annual purchasing cost =
2
caT
T
cQ
=

(c) . Annual inventory carrying cost =
3
haT
q(t)dt
T
h
2 T
0
=

(d). Annual ordering cost =
T
s

(e). Annual capital opportunity cost









time
m

time

m
111 Optimal Pricing and Lot Sizing Policy with Time-
Dependent Demand Rate Under Trade Credits


Case 1: m T (Fig. 1(a)): As products are sold, the sales revenue is used to earn
interest with annual rate I during the credit period m. The average number of products in stock earning
interest during time (0,m) is

= =
m
0
2
2
m
0
3
am
dt at
m
1
dt t)t D(p,
m
1
, and the interest earned per order
becomes
mcI
3
am
2
|
|

\
|
. When the credit has to be settled, the product still in stock is assumed to be
financed with annual rate R. The average number of product during (m, T) is

T
m
q(t)dt,
m T
1
the
interest payable per order is

T
m
q(t)dt cR
. Thus the annual capital opportunity cost =

3T
cI am
T
m
3Tm 2T
6
acR
T
3
cI am
q(t)dt cR
3 3
2
T
m
3

|
|

\
|
+ =

Case 2: m > T (Fig. 1(b)): In this case all the sales revenue is used to earn interest with annual rate I
during the credit period m. The annual capital opportunity cost
=
( ) T m
3
T
2
acI
dt at T m dt at
T
cI
T
0
T
0
2
|

\
|
=
(

+


The annual net profit Z (p,T) can be expressed as
Z(p,T) = Sales revenue Purchasing cost Ordering cost Inventory carrying cost Capital opportunity
cost.
The Z (p,T) has two different expressions as follows:
Case 1: m T
( )
3T
acIm
T
m
3Tm 2T
6
acR
3
ahT
T
s
2
acT
2
apT
T p, Z
3 3
2
2
1
+
|
|

\
|
+ =
(4)
Case 2: m > T
( ) |

\
|
= m
3
T
2
aIcT
3
ahT
T
s
2
acT
2
apT
T p, Z
2
2
(5)
Hence the total annual profit Z(p,T) is written as

( )
( )
( )

>

=
T m for T p, Z
T m for T p, Z
T p, Z
2
1




R.P. Tripathi & S.S. Misra 112
DETERMINATION OF OPTIMAL PRICING AND CYCLE TIME
To find an optimal retail price p* and an optimal replenishment cycle time T* which maximizes
Z(p,T). Once p* and T* are found, an optimal lot size Q* and optimal annual profit can be obtained by
(3) (4) and (5) respectively. Taking the first and second order partial derivatives of Z
i
(p,T), for i = 1 and
2, with respect to T, and p , we obtain
2
3
2
3
2
1
3T
acIm
T
m
3m 4T
6
acR
3
2ahT
T
s
2
ac
2
ap
T
T) (p, Z

|
|

\
|
+ =

(6)

2
acIm
3
acIT
3
2ahT
T
s
2
ac
2
ap
T
T) (p, Z
2
2
+ + =

(7)
T 3
Im p
T
m
3Tm 2T
6
cR p
3
hT p
2
aT
2
) c p ( T p
p
T) (p, Z
3 1 3
2
1
2 1 1
1

|
|

\
|
+

+ +

=

(8)

( ) { }
(

\
|
+ + + =

m
3
T
2
IcT
3
hT
2
T
c p 1
p
a
p
T) (p, Z
2
2
(9)

0
3T
2acIm
3T
acRm
3
2acR
3
2ah
T
2s
T
T) (p, Z
3
3
3
3
3 2
1
2
<
|
|

\
|
+ + + + =

(10)


0
3
acI
3
2ah
T
2s
T
T) (p, Z
3 2
2
2
< |

\
|
+ + =

(11)

( )
( ) ( ) 0 1
p
a
3T
cIm
T
m
3Tm 2T
6
cR
3
hT
c p 1
p
1
p
T) (p, Z
3 3
2
2
2 2
1
2
<
(

|
|

\
|
+ +

+ +
+
=

(12)

( )
( )
( )
0
2p
T 1 a
m
3
T
2
IcT
3
hT
2
cT
p 1
2
T
a
p
1
p
T) (p, Z
2
2 2
2
2
<

)
`

\
|
+ + +
+
=

(13)


0
T
T) (p, Z
2
1
2
<

,
0
p
T) (p, Z
2
1
2
<

, and
|
|

\
|

2
1
2
T
T) (p, Z
|
|

\
|

2
1
2
p
T) (p, Z
_
2
1
2
p
T) (p, Z
|
|

\
|

T
> 0

and
0
T
T) (p, Z
2
2
2
<

,
0
p
T) (p, Z
2
2
2
<

, and
|
|

\
|

2
2
2
T
T) (p, Z
|
|

\
|

2
2
2
p
T) (p, Z
_
2
2
2
p
T) (p, Z
|
|

\
|

T
> 0
The optimal (maximum) value of
T = T *, a n d p = p *
is obtained by putting,
i i
Z ( p , T ) Z ( p , T )
0 , 0 , 1, 2 .
T
i
p

= = =

simultaneously for both cases case I and case II. We obtain
113 Optimal Pricing and Lot Sizing Policy with Time-
Dependent Demand Rate Under Trade Credits


( ) ( ) { }
{ }
3 2 3
2 2 3 2 3
4a h cR T 3a(p c cRm)T 6s ac R 2I m 0
3( -1)pT 3 2( ) 3 ( 2 ) 0 cT h cR T cRmT c R I m

+ + + =

+ + + =

, (case: I) (14)
( )
{ }
3 2
2a 2h cI T 3a(p c cIm)T 6s 0
3( -1)p 3 (2 ) 3 m 0 c h cI T cI
+ + =

+ + =

, (case: II) (15)

Optimal (maximum) value of p = p* (= p
1
for case I) and T = T*(= T
1
for case I) and p = p* (= p
2
for case
II) and T = T*(= T
2
for case II) are obtained by solving equations (14) and (15) simultaneously for case I
and II respectively.
NUMERICAL EXAMPLES
Case I
Example 1. Let h = 15, c = 5, = 10
6
, s = 50, R = 0.25 (=25%), I = 0.1 (=10%), = 3, m = 5/365, then
p = 20.5124 unit, T = 0.711525 year, Q* = 29.3292 units, and Z(p, T) = $ 252.126.
Case II
Example 2. Let h = 15, c = 5, = 10
6
, s = 50, R = 0.25 (=25%), I = 0.1 (=10%), = 3, m = 260/365,
then p = 17.7399 unit, T = 0.705232 year Q* = 44.5431 units, and Z(p, T) = $ 318.478.
OPTIMAL SOLUTION FOR DIFFERENT CREDIT PERIOD m
Optimal solution of order quantity Q = Q* and annual profit Z(p, T) = Z*(p, T) for different
values of credit period m

















R.P. Tripathi & S.S. Misra 114
Table 1.
case I

m
(days)
p = p* T = T*

(in years)
Order quantity
Q= Q* units
Annual Profit
Z(p, T) (dollars)
m T 05 p
1
=20.5124 T
1
= 0.711525 Q
1
= 29.3292 252.126
10 p
1
=18.9728 T
1
= 0.707076 Q
1
= 36.6023 257.846
15 p
1
=18.9026 T
1
= 0.706619 Q
1
= 36.9637 258.744
20 p
1
=18.8399 T
1
= 0.70415 Q
1
= 37.0736 259.645
25 p
1
=18.7733 T
1
= 0.701665 Q
1
= 37.2056 260.554
30 p
1
=18.7068 T
1
= 0.699161 Q
1
= 37.3358 261.471
35 p
1
=18.6398 T
1
= 0.696633 Q
1
= 37.4675 262.298
40 p
1
=18.5722 T
1
= 0.694075 Q
1
=37.6004 263.334
50 p
1
=18.4350 T
1
= 0.688856 Q
1
=37.8702 265.239
60 p
1
=18.2945 T
1
= 0.683465 Q
1
=38.1453 267.191
70 p
1
=18.1499 T
1
= 0.677859 Q
1
=38.4261 269.197
80 p
1
=18.0002 T
1
= 0.671993 Q
1
=38.714 271.263
100 p
1
=17.6818 T
1
= 0.659275 Q
1
=39.3119 275.609
120 p
1
=17.3300 T
1
= 0.644829 Q
1
=39.9451 280.307
140 p
1
=16.9324 T
1
= 0.628012 Q
1
=40.6210 285.458
160 p
1
=16.4709 T
1
= 0.607893 Q
1
=41.3497 291.208
180 p
1
=15.9158 T
1
= 0.582943 Q
1
=42.1441 297.774
200 p
1
=15.2092 T
1
= 0.550176 Q
1
=43.0184 305.526
case II 260 p
2
=17.7399 T
1
= 0.705232 Q
2
= 44.5431 318.478
m T 280 p
2
=17.7685 T
1
= 0.708955 Q
2
= 44.7976 321.857
300 p
2
=17.7973 T
1
= 0.712694 Q
2
= 45.052 325.227
320 p
2
=17.8263 T
1
= 0.716448 Q
2
= 45.306 328.586
340 p
2
=17.8555 T
1
= 0.720216 Q
2
= 45.5596 331.935
360 p
2
=17.8849 T
1
= 0.723998 Q
2
= 45.8126 335.274
380 p
2
=17.9146 T
1
= 0.727795 Q
2
= 46.0645 338.601
400 p
2
= 17.9444 T
1
= 0.731606 Q
2
= 46.3167 341.918
420 p
2
= 17.9745 T
1
= 0.73543 Q
2
= 46.5674 345.223
440 p
2
=18.0048 T
1
= 0.739269 Q
2
= 46.8177 348.516
460 p
2
=18.0353 T
1
= 0.743121 Q
2
= 47.0673 351.797
480 p
2
=18.0659 T
1
= 0.746986 Q
2
= 47.3169 355.067
500 p
2
=18.0968 T
1
= 0.750864 Q
2
= 47.5650 358.325
540 p
2
=18.1591 T
2
= 0.75866 Q
2
= 48.0597 364.803
580 p
2
= 18.222 T
2
= 0.766506 Q
2
= 48.5511 371.23
620 p
2
=18.2861 T
2
= 0.774401 Q
2
= 49.0387 377.604
660 p
2
=18.3506 T
2
= 0.782344 Q
2
= 49.5239 383.925
700 p
2
=18.4159 T
2
= 0.790334 Q
2
= 50.0049 390.191
750 p
2
=18.4984 T
2
= 0.800385 Q
2
= 50.6017 397.946
800 p
2
=18.5819 T
2
= 0.810504 Q
2
= 51.1929 405.611
850 p
2
=18.6665 T
2
= 0.820689 Q
2
= 51.7772 413.185
900 p
2
=18.7520 T
2
= 0.830938 Q
2
= 52.3558 420.666
115 Optimal Pricing and Lot Sizing Policy with Time-
Dependent Demand Rate Under Trade Credits


SENSITIVITY ANALYSIS
Case I Table 2(a) Variation of h keeping parameters same as in Example 1.
h p = p
1
T = T
1
(in years)
Order quantity
Q
Annual Profit Z(p, T) (in
dollars)
20 21.4042 T
2
= 0.673564 Q
1
= 23.1329 162.027
21 24.0797 T
2
= 0.672688 Q
1
= 16.2048 145.336
22 22.296 T
2
= 0.673629 Q
1
= 20.4706 134.601
23 23.1879 T
2
= 0.676295 Q
1
= 18.3425 123.288
24 24.9716 T
2
= 0.680629 Q
1
= 14.8748 112.99
25 25.8634 T
2
= 0.686601 Q
1
= 13.6245 103.09
30 28.5389 T
2
= 0.741777 Q
1
= 11.836 61.8775
35 35.6737 T
2
= 0.848628 Q
1
= 7.93159 36.2490


Table 2(b) Variation of c keeping parameters same as in Example 1.
c p = p
1
T = T
1
(in years)
Order quantity
Q units
Annual Profit Z(p, T)
(in dollars)
6 26.323 0.849565 Q
1
= 19.7860 197.292
7 27.143 0.986479 Q
1
= 24.3317 175.033
8 24.2809 1.12239 Q
1
= 44.0011 96.1106
9 79.5446 1.25739 Q
1
= 1.57064 10.4392
10 19.0268 1.39159 Q
1
= 140.571 -760.626
11 53.558 1.5251 Q
1
= 7.56996 89.0645
12 not valid not valid --------- -------------
13 97.1236 1.79039 Q
1
= 1.74941 33.0302


Table 2(c) Variation of s keeping parameters same as in Example 1.
s p = p
1
T = T
1
(in years)
Order quantity
Q units
Annual Profit Z(p, T) (in
dollars)
55 19.4584 0.735182 Q
1
= 36.6808 250.047
60 20.0664 0.758842 Q
1
= 35.6340 343.195
65 21.953 0.7782543 Q
1
= 28.6241 231.014
70 22.296 0.806318 Q
1
= 29.3293 225.205
75 22.5933 0.830197 Q
1
= 29.8809 219.794
80 22.296 0.854207 Q
1
= 32.9166 217.906



R.P. Tripathi & S.S. Misra 116
Case II
Table 3(a) Variation of h keeping parameters same as in Example 2.
h p = p
2
T = T
2
(in years)
Order quantity
Q units
Annual Profit Z(p, T)
(in dollars)
20 20.2806 0.656021 Q
2
= 25.7966 200.117
21 20.870222 0.652857 Q
2
= 23.4437 182.856
22 21.4922 0.651458 Q
2
= 21.3747 167.119
23 22.1495 0.651711 Q
2
= 19.5429 152.73
24 22.8451 0.653538 Q
2
= 17.9115 139.542
25 23.5824 0.656885 Q
2
= 16.4507 127.429
26 24.3651 0.661722 Q
2
= 15.1362 116.283
27 25.1977 0.668042 Q
2
= 13.9475 106.013
28 26.0848 0.675858 Q
2
= 12.8682 96.5373
29 27.0319 0.685205 Q
2
= 11.8845 87.7868
30 28.0454 0.696138 Q
2
= 10.9844 79.700
31 29.1323 0.708734 Q
2
= 10.1581 72.2231


Table 3(b) Variation of c keeping parameters same as in Example 2.

c p = p
2
T = T
2
(in years)
Order quantity
Q units
Annual Profit Z(p, T)
(in dollars)
1 3.375845 0.155053 Q
2
= 312.452 1606.9
2 7.40305 0.30253 Q
2
= 112.791 812.406
3 10.9429 0.443034 Q
2
= 74.894 538.205
4 14.3861 0.577105 Q
2
= 55.931 400.947


Table 3(c) Variation ofs keeping parameters same as in Example 2.

s p = p
2
T = T
2
(in years)
Order quantity
Q units
Annual Profit Z(p, T)
(in dollars)
45 17.4569 0.686394 Q
2
= 44.2808 326.448
40 17.1723 0.667449 Q
2
= 43.9866 334.673
35 16.8855 0.648363 Q
2
= 43.6581 343.17
30 16.596 0.629097 Q
2
= 43.2907 351.961
25 16.3032 0.609605 Q
2
= 42.8794 361.071
20 16.0061 0.589832 Q
2
= 42.4990 370.527
15 15.7037 0.56971 Q
2
= 41.9056 380.364
10 15.3949 0.549153 Q
2
= 41.3262 390.622

117 Optimal Pricing and Lot Sizing Policy with Time-
Dependent Demand Rate Under Trade Credits

All the above observations can be sum up as follows:
From Table 1. It can be easily seen that:
a) Increase of credit period m results decrease of p = p* = p
1
, T =T* = T
1
, slight increase of order
quantity Q = Q* = Q
1
and increase of annual profit Z(p, T) = Z
1
*(p, T) ,( for case I).
b) Increase of credit period m results slight increase of p = p* = p
2
, T =T* = T
2
, and order
quantity Q = Q* = Q
2
and increase of annual profit Z(p, T) = Z
2
*(p, T) ,
(for case I). From Table 2 (a), we observe that:
c) Increase of holding cost h results increase of p = p* = p
1
, slight increase of T = T* = T
1
,
decrease of order quantity Q = Q* = Q
1
and decrease of Z(p, T) = Z
1
*(p, T) .
From Table 2 (b), we observe that:
d) Increase of c results increase of p = p* = p
1
, T =T* = T
1
, and order quantity Q = Q* = Q
1

increases then decreases while Z(p, T) = Z
1
*(p, T) is not uniform. From Table 2(c), we observe
that:
e) Increase ofs results slight increase of p = p* = p
1
, T =T* = T
1
, decrease of order quantity Q =
Q* = Q
1
, while annual profit increases then decreases.
From Table 3(a), we observe that:
f) Increase of h results, increase of p = p* = p
2
, slight increase of T =T* = T
2
, decrease of order
quantity Q = Q* = Q
2
, and decrease of annual profit Z(p, T) = Z
2
*(p, T) .
g) From Table 3(b), we observe that:
h) Increase of c results increase of p = p* = p
2
, T =T* = T
2
, but decrease of order quantity Q =
Q* = Q
2
, and decrease of annual profit Z(p, T) = Z
2
*(p, T).
i) Decrease of s results, slight decrease of p = p* = p
2
, decrease of T =T* = T
2
slight decrease of
order quantity Q = Q* = Q
2
, an increase of annual profit Z(p, T) = Z
2
*(p, T) .
Note: Solution is not valid for every value of h c ands. Solution exists only for limited values of h
and c; beyond the limit solution does not exist. The managerial and marketing point of view it
application is limited.
CONCLUSION ANDFUTURE RESEARCH
In this paper author developed an optimal pricing and lot size model for a retailer when supplier
provides a permissible delay in payments. We derive the first and second order conditions for finding the
optimal price and optimal cycle time. In this method shortages are not allowed. Numerical examples are
studied to illustrate the proposed model with varying credit period m. The sensitivity of the solution to
changes in the values of different parameters has also been discussed for both the cases i.e. case I and
case II. The managerial point of view this model is applicable for limited range, parameters etc.
R.P. Tripathi & S.S. Misra 118
This paper can be extended for several ways. For instance we may extend the model for continuously
variable holding costs such as stock dependent holding cost model. Also we could consider the demand
as a function of quantity as well as stock- dependent. Finally, we could generalize the model to allow for
shortages, cash discount and inflation rates etc.
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